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A Rapid Assessment Model For Understanding The Social Cost Of Carbon

Author

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  • STEPHEN C. NEWBOLD

    (U.S. EPA, National Center for Environmental Economics, EPA West Building — 4316T, 1301 Constitution Avenue NW, Washington, DC 20460, USA)

  • CHARLES GRIFFITHS

    (U.S. EPA, National Center for Environmental Economics, EPA West Building — 4316T, 1301 Constitution Avenue NW, Washington, DC 20460, USA)

  • CHRIS MOORE

    (U.S. EPA, National Center for Environmental Economics, EPA West Building — 4316T, 1301 Constitution Avenue NW, Washington, DC 20460, USA)

  • ANN WOLVERTON

    (U.S. EPA, National Center for Environmental Economics, EPA West Building — 4316T, 1301 Constitution Avenue NW, Washington, DC 20460, USA)

  • ELIZABETH KOPITS

    (U.S. EPA, National Center for Environmental Economics, EPA West Building — 4316T, 1301 Constitution Avenue NW, Washington, DC 20460, USA)

Abstract

The "social cost of carbon" (SCC) is the present value of the stream of future damages from one additional unit of carbon emissions in a particular year. This paper develops a rapid assessment model for the SCC. The model includes the essential ingredients for calculating the SCC at the global scale and is designed to be transparent and easy to use and modify. Our goal is to provide a tool to help analysts and decision-makers quickly explore the implications of various modeling assumptions for the SCC. We use the model to conduct sensitivity analyses over some of the key input parameters, and we compare estimates of the SCC under certainty and uncertainty in a Monte Carlo analysis. We find that, due to the combined effects of uncertainty and risk aversion, the certainty-equivalent SCC can be substantially larger than the expected value of the SCC. In our Monte Carlo simulation, the certainty-equivalent SCC is more than four times larger than the expected value of the SCC, and we show that this result depends crucially on how the uncertain preference parameters are handled. We also compare the approximate present value of benefits estimated using the SCC to the exact value of compensating variation in the initial period for a wide range of hypothetical emission reduction policies.

Suggested Citation

  • Stephen C. Newbold & Charles Griffiths & Chris Moore & Ann Wolverton & Elizabeth Kopits, 2013. "A Rapid Assessment Model For Understanding The Social Cost Of Carbon," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 4(01), pages 1-40.
    • Handle: RePEc:wsi:ccexxx:v:04:y:2013:i:01:n:s2010007813500012
    DOI: 10.1142/S2010007813500012
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    Cited by:

    1. Havranek, Tomas & Irsova, Zuzana & Janda, Karel & Zilberman, David, 2015. "Selective reporting and the social cost of carbon," Energy Economics, Elsevier, vol. 51(C), pages 394-406.
    2. Alex L. Marten, 2014. "The Role Of Scenario Uncertainty In Estimating The Benefits Of Carbon Mitigation," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 5(03), pages 1-29.
    3. Siba Sankar Mohanty & Annie Rath, 2021. "Capturing Social Cost in Construction Sector: A Review of Literature through Meta-Analysis," Journal of Studies in Dynamics and Change (JSDC), ISSN: 2348-7038, Voices of Inclusive Change and Expressions- (VOICE) Trust, Dehradun, Uttarakhand, vol. 8(4), pages 17-30, October-D.
    4. Miftakhova, Alena & Judd, Kenneth L. & Lontzek, Thomas S. & Schmedders, Karl, 2020. "Statistical approximation of high-dimensional climate models," Journal of Econometrics, Elsevier, vol. 214(1), pages 67-80.
    5. 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.
    6. Samuel Jovan Okullo, 2020. "Determining the Social Cost of Carbon: Under Damage and Climate Sensitivity Uncertainty," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 75(1), pages 79-103, January.
    7. van den Bijgaart, Inge, 2016. "Essays in environmental economics and policy," Other publications TiSEM 298bee2a-cb08-4173-9fe1-8, Tilburg University, School of Economics and Management.
    8. 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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