Intertemporal Distribution, Suffciency, and the Social Cost of Carbon

Martin C. Hänsel and Martin Quaas

Open Access Publications from Kiel Institute for the World Economy from Kiel Institute for the World Economy (IfW Kiel)

Abstract: We explore how the intertemporal distribution of well-being affects the social cost of carbon. In contrast to the literature that studies parameters of a particular social welfare function, such as the discount rate, we shift the focus and directly assume a parametric form for the intertemporal distribution of well-being. This has the advantage of avoiding explicit discounting choices, which has initiated much debate. Specifically, we consider a set of intertemporal distributions that reach a pre-specified steady-state level of "sufficient" well-being, or equivalently, after a pre-specified "end-of-growth horizon". We numerically illustrate our results in DICE and find that the social cost of carbon increases over-proportionally with the sufficiency level of well-being. While the social cost of carbon in 2015 is US$ 7 if the sufficiency level is four-fold the present level, it is US$ 30 if the sufficiency level is 15-fold and US$ 100 if the sufficiency level is 26-fold the present level. This shows in a transparent way how conceptions of intergenerational distributive justice drive the social cost of carbon.

Keywords: climate change; social cost of carbon; optimal tax; DICE; optimal growth; sustainability; social welfare function; discounting (search for similar items in EconPapers)
JEL-codes: C61 D31 D91 H21 Q01 Q54 (search for similar items in EconPapers)
Date: 2018
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Journal Article: Intertemporal Distribution, Sufficiency, and the Social Cost of Carbon (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkie:233103

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