Risk Aversion, Time Preference, and the Social Cost of Carbon

David Anthoff (), Richard Tol and Gary Yohe ()

No WP252, Papers from Economic and Social Research Institute (ESRI)

Abstract: The Stern Review reported a social cost of carbon of over $300/tC, calling for ambitious climate policy. We here conduct a systematic sensitivity analysis of this result on two crucial parameters: the rate of pure time preference, and the rate of risk aversion. We show that the social cost of carbon lies anywhere in between 0 and $120,000/tC. However, if we restrict these two parameters to match observed behavior, an expected social cost of carbon of $60/tC results. If we correct this estimate for income differences across the world, the social cost of carbon rises to over $200/tC.

Pages: 34 pages
Date: 2008-09
New Economics Papers: this item is included in nep-ene, nep-env and nep-upt
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:esr:wpaper:wp252

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