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A simple formula for the social cost of carbon

Inge van den Bijgaart (), Reyer Gerlagh and Matti Liski ()

Journal of Environmental Economics and Management, 2016, vol. 77, issue C, 75-94

Abstract: The social cost of carbon (SCC) is the monetized damage from emitting one unit of CO2 to the atmosphere, often obtained from computational Integrated Assessment Models (IAMs). We develop a closed-form formula that approximates the SCC for a general economy, and then explore the capacity of the analytical approach to capture the key SCC drivers and thus to replicate the results of the deterministic IAMs. The formula explains the parameter-driven SCC variation of a mainstream IAM without a systematic bias. The sensitivity analysis identifies and measures the performance limits of the closed-form formulas. We then use the analytic formula to structurally interpret a distribution of SCCs from deterministic IAMs, and develop an analytical breakdown and quantification of how different sets of parameters contribute to the SCC distribution. This allows the user of the formula to evaluate where particular parameter choices tend to place the resulting SCC outcome in the distribution of outcomes for the universe of deterministic IAMs.

Keywords: H23; Q54; Q48; C68; Climate change; Social cost of carbon; Integrated assessment models (search for similar items in EconPapers)
Date: 2016
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Working Paper: A Simple Formula for the Social Cost of Carbon (2013) Downloads
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Journal of Environmental Economics and Management is currently edited by M.A. Cole, A. Lange, D.J. Phaneuf, D. Popp, M.J. Roberts, M.D. Smith, C. Timmins, Q. Weninger and A.J. Yates

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