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The social cost of carbon emissions: Seven propositions

Foley, Duncan K. and Rezai, Armon and Taylor, Lance (2013) The social cost of carbon emissions: Seven propositions. Economics Letters, 121 (1). pp. 90-97. ISSN 0165-1765

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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, $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 high-light 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. (authors' abstract)

Item Type: Article
Additional Information: To see the final version of this paper please visit the publisher's website. Access to the published version may require a subscription. The original publication is available at www.elsevier.com.
Keywords: climate change / cost-benefit analysis / climate policy / carbon price / scenario-dependent discounting
Classification Codes: JEL D61, Q54, Q52, H23, D62, C61
Divisions: Departments > Sozioökonomie > Multi-Level Governance and Development
Version of the Document: Accepted for Publication
Variance from Published Version: Minor
Depositing User: ePub Administrator
Date Deposited: 25 Nov 2013 10:34
Last Modified: 25 Nov 2013 15:15
Related URLs:
FIDES Link: https://bach.wu.ac.at/d/research/results/63156/
URI: http://epub.wu.ac.at/id/eprint/4021

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