The Social Cost of Carbon with Economic and Climate Risks

Yongyang Cai and Thomas S. Lontzek

Journal of Political Economy, 2019, vol. 127, issue 6, 2684 - 2734

Abstract: Uncertainty about future economic and climate conditions substantially affects the choice of policies for managing interactions between the climate and the economy. We develop a framework of dynamic stochastic integration of climate and economy, and show that the social cost of carbon is substantially affected by both economic and climate risks and is a stochastic process with significant variation. We examine a wide but plausible range of values for critical parameters with robust results and show that large-scale computing makes it possible to analyze policies in models substantially more complex and realistic than usually used in the literature.

Date: 2019
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Working Paper: The Social Cost of Carbon with Economic and Climate Risks (2015)
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