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The "Social Cost of Carbon" Made Simple

Stephen Newbold (), Charles Griffiths, Chris Moore (), Ann Wolverton () and Elizabeth Kopits

No 201007, NCEE Working Paper Series from National Center for Environmental Economics, U.S. Environmental Protection Agency

Abstract: The “social cost of carbon” (SCC) is the present value of the future stream of damages from one additional ton of carbon emissions in a particular year. This paper develops a simple model for calculating the SCC and compares estimates of the SCC under certainty and uncertainty. Our model includes the key ingredients shared by several of the more complex integrated assessment models in the climate economics literature, but is designed to be more transparent and easier to use by decision-makers and non-specialists. We conduct a series of sensitivity analyses to examine the influences of several key parameters in the deterministic case. We also conduct a formal uncertainty analysis using Monte Carlo simulation, which shows that the certainty-equivalent SCC can be substantially larger than the expected value of the SCC. We explain that this difference arises due to the combined effects of uncertainty and risk aversion. Finally, we compare the present value of benefits estimated using the SCC to the compensating variation of consumption in the initial period for a wide range of hypothetical emission reduction policies.- Submitted August, 2010; Resubmitted May, 2011

Keywords: climate change; social cost of carbon; integrated assessment model (search for similar items in EconPapers)
JEL-codes: Q54 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2010-08, Revised 2010-08
New Economics Papers: this item is included in nep-cmp, nep-ene and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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