Normative aspects in modeling the urgency of climate policy

Arthur Zito Guerriero, Jakob Kapeller and Jörg Ankel-Peters

No 1206, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: The social cost of carbon (SCC) isthe central concept of benefit-cost analysis in climate economics. The SCC provides guidance on the urgency of climate policy as it expresses the present value of expected future damages associated with the emission of one additional ton of CO2. This paper summarizes key normative assumptions underlying the calculation of the SCC and illustrates how these crucially affect the magnitude of final estimates. Building on a social welfare framework, we discuss the treatment of risk, time (discounting), and inequality (equity weights). Moreover, we present the normative choices related to how SCC estimates monetize non-market damage, in particular the loss of human lives. Based on a database of 515 studies with original SCC estimates (Tol, 2026), we document how the literature deals with these normative issues. In doing so, we find significant variation in the treatment of normative aspects across studies, but also across different normative dimensions. For instance, while the literature justifies the use of a time discount rate based on the assumption of diminishing marginal utility, equity aspects between countries or regions are often ignored. We conclude by stressing that while the SCC can help structuring societal deliberation about climate policy, greater clarity and transparency on the underlying normative assumptions is necessary.

Keywords: climate change; social welfare; normativity; discounting; distribution; risk; value-neutrality (search for similar items in EconPapers)
JEL-codes: D61 D63 Q54 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:341095

DOI: 10.4419/96973391

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