Risk Aversion, Time Preference, and the Social Cost of Carbon

David Anthoff, Richard S.J. Tol () and Gary W. Yohe
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Gary W. Yohe: Wesleyan University

No WP252, Papers from Economic and Social Research Institute (ESRI)

Abstract: The Stern Review reported a social cost of carbon of over $300/tC, calling for ambitious climate policy. We here conduct a systematic sensitivity analysis of this result on two crucial parameters: the rate of pure time preference, and the rate of risk aversion. We show that the social cost of carbon lies anywhere in between 0 and $120,000/tC. However, if we restrict these two parameters to match observed behavior, an expected social cost of carbon of $60/tC results. If we correct this estimate for income differences across the world, the social cost of carbon rises to over $200/tC.

New Economics Papers: this item is included in nep-ene, nep-env and nep-upt
Date: 2008-09
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