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Intertemporal Distribution, Sufficiency, and the Social Cost of Carbon

Martin C. Hänsel and Martin Quaas

Ecological Economics, 2018, vol. 146, issue C, 520-535

Abstract: We explore how the intertemporal distribution of well-being affects the social cost of carbon. In contrast to the literature that studies parameters of a particular social welfare function, such as the discount rate, we shift the focus and directly assume a parametric form for the intertemporal distribution of well-being. This has the advantage of avoiding explicit discounting choices, which has initiated much debate. Specifically, we consider a set of intertemporal distributions that reach a steady-state at a pre-specified level of “sufficient” well-being, or equivalently after a pre-specified “end-of-growth horizon”. We numerically illustrate our results in DICE and find that the social cost of carbon increases over-proportionally with the sufficiency level of well-being. While the social cost of carbon in 2015 is US$7 if the sufficiency level is four-fold the present level, it is US$30 if the sufficiency level is 15-fold, and US$100 if the sufficiency level is 26-fold the present level. This shows in a transparent way how conceptions of intergenerational distributive justice drive the social cost of carbon.

Keywords: Climate change; Social cost of carbon; Optimal tax; DICE; Optimal growth; Sustainability; Social welfare function; Discounting (search for similar items in EconPapers)
JEL-codes: Q01 Q54 H21 C61 D31 D91 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:ecolec:v:146:y:2018:i:c:p:520-535