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The "Social Cost of Carbon" Made Simple

Author

Listed:
  • Steve Newbold
  • Charles Griffiths
  • Christopher C. Moore
  • Ann Wolverton
  • Elizabeth Kopits
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

Suggested Citation

  • Steve Newbold & Charles Griffiths & Christopher C. Moore & Ann Wolverton & Elizabeth Kopits, 2010. "The "Social Cost of Carbon" Made Simple," NCEE Working Paper Series 201007, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Aug 2010.
    • Handle: RePEc:nev:wpaper:wp201007
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    File URL: https://www.epa.gov/environmental-economics/working-paper-social-cost-carbon-made-simple
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    2. Martin, Will & Ivanic, Maros & Mamun, Abdullah, 2021. "Modeling Development Policies with Multiple Objectives," 2021 Conference, August 17-31, 2021, Virtual 315330, International Association of Agricultural Economists.
    3. Alberini, Anna & Ščasný, Milan & Bigano, Andrea, 2018. "Policy- v. individual heterogeneity in the benefits of climate change mitigation: Evidence from a stated-preference survey," Energy Policy, Elsevier, vol. 121(C), pages 565-575.
    4. Wesley R. Brooks & Stephen C. Newbold, 2013. "Ecosystem damages in integrated assessment models of climate change," NCEE Working Paper Series 201302, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Mar 2013.
    5. repec:hal:wpspec:info:hdl:2441/eu4vqp9ompqllr09hi4j70a29 is not listed on IDEAS
    6. Tol, Richard S.J., 2013. "Targets for global climate policy: An overview," Journal of Economic Dynamics and Control, Elsevier, vol. 37(5), pages 911-928.
    7. Soren T. Anderson & Ian W. H. Parry & James M. Sallee & Carolyn Fischer, 2011. "Automobile Fuel Economy Standards: Impacts, Efficiency, and Alternatives," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 5(1), pages 89-108, Winter.
    8. Marion Dupoux, 2016. "The land use change time-accounting failure," Working Papers 2016/02, INRA, Economie Publique.
    9. Amanda Harker Steele & Travis Warner & Derek Vikara & Allison Guinan & Peter Balash, 2021. "Comparative Analysis of Carbon Capture and Storage Finance Gaps and the Social Cost of Carbon," Energies, MDPI, vol. 14(11), pages 1-24, May.
    10. Richard S.J. Tol, 2021. "Estimates of the social cost of carbon have not changed over time," Working Paper Series 0821, Department of Economics, University of Sussex Business School.
    11. Kopp, Robert E. & Golub, Alexander & Keohane, Nathaniel O. & Onda, Chikara, 2012. "The influence of the specification of climate change damages on the social cost of carbon," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 6, pages 1-40.
    12. Kousky, Carolyn & Kopp, Robert E. & Cooke, Roger M., 2011. "Risk premia and the social cost of carbon: A review," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 5, pages 1-24.
    13. repec:spo:wpecon:info:hdl:2441/eu4vqp9ompqllr09hi4j70a29 is not listed on IDEAS
    14. repec:spo:wpmain:info:hdl:2441/eu4vqp9ompqllr09hi4j70a29 is not listed on IDEAS
    15. Kazushi Hatase & Shunsuke Managi, 2015. "Increase in carbon prices: analysis of energy-economy modeling," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 17(2), pages 241-262, April.
    16. Céline Antonin & Thomas Melonio & Xavier Timbeau, 2012. "L'epargne nette ré-ajustée," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(1), pages 259-286.
    17. Domenico Enrico Massimo & Vincenzo Del Giudice & Alessandro Malerba & Carlo Bernardo & Mariangela Musolino & Pierfrancesco De Paola, 2021. "Valuation of Ecological Retrofitting Technology in Existing Buildings: A Real-World Case Study," Sustainability, MDPI, vol. 13(13), pages 1-35, June.
    18. repec:hal:spmain:info:hdl:2441/eu4vqp9ompqllr09hi4j70a29 is not listed on IDEAS
    19. Ščasný, Milan & Máca, Vojtěch & Melichar, Jan & Rečka, Lukáš, 2015. "Kvantifikace environmentálních a zdravotních dopadů (externích nákladů) z povrchové těžby hnědého uhlí v Severočeské hnědouhelné pánvi v těžebních lokalitách velkolomů Bílina a ČSA a využití vydobytéh," MPRA Paper 66600, University Library of Munich, Germany.
    20. Richard S. J. Tol, 2021. "Estimates of the social cost of carbon have increased over time," Papers 2105.03656, arXiv.org, revised Aug 2022.

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    More about this item

    Keywords

    climate change; social cost of carbon; integrated assessment model;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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