Quotation Foley, Duncan, Rezai, Armon, Taylor, Lance. 2013. The social cost of carbon emissions. Economics Letters 121, 90-97.


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Abstract

Determining the social cost of carbon emissions (SCC) is a crucial step in the economic analysis of climate change policy as the US government’s recent decision to use a range of estimates of the SCC centered at $77/tC (or, equivalently, View the MathML source$21/tCO2) in cost-benefit analyses of proposed emission-control legislation underlines. This note reviews the welfare economics theory fundamental to the estimation of the SCC in both static and intertemporal contexts, examining the effects of assumptions about the typical agent’s pure rate of time preference and elasticity of marginal felicity of consumption, production and mitigation technology, and the magnitude of climate-change damage on estimates of the SCC. We highlight three key conclusions: (i) an estimate of the SCC is conditional on a specific policy scenario, the details of which must be made explicit for the estimate to be meaningful; (ii) the social discount rate relevant to intertemporal allocation decisions also depends on the policy scenario; and (iii) the SCC is uniquely defined only for policy scenarios that lead to an efficient growth path because marginal costs and benefits of emission–mitigation diverge on inefficient growth paths. We illustrate these analytical conclusions with simulations of a growth model calibrated to the world economy.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal Economics Letters
Citation Index SSCI
WU Journalrating 2009 A
WU-Journal-Rating new FIN-A, STRAT-B, VW-B, WH-B
Language English
Title The social cost of carbon emissions
Volume 121
Year 2013
Page from 90
Page to 97
Reviewed? Y
DOI http://dx.doi.org/10.1016/j.econlet.2013.07.006

Associations

People
Rezai, Armon (Details)
External
Foley, Duncan (United States/USA)
Taylor, Lance (United States/USA)
Organization
Institute for Multi-Level Governance and Development IN (Details)
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