Which Social Cost of Carbon? A Theoretical Perspective

Matthew Kotchen

Journal of the Association of Environmental and Resource Economists, 2018, vol. 5, issue 3, 673 - 694

Abstract: This paper develops a theoretical foundation for the social cost of carbon (SCC). The model highlights the source of debate over whether countries should use the global or domestic SCC for regulatory impact analysis. I identify conditions under which a country's decision to internalize the global SCC is individually rational. I show that obtaining international consensus on a uniform value to internalize will be more challenging than often appreciated. I introduce the notion of a "preferred SCC" to reflect each country's preference conditional on a true value of the global SCC and a distribution of the domestic SCCs among countries. While all countries have a preferred SCC greater than their domestic SCC, a country's preferred SCC can be greater than or less than the global SCC. How these preferences translate into agreement depends on institutional arrangements for collective decision making, for which I provide empirical evidence based on various decision rules.

Date: 2018
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Citations: View citations in EconPapers (21)

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Working Paper: Which Social Cost of Carbon? A Theoretical Perspective (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ucp:jaerec:doi:10.1086/697241

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