Sunday, October 30, 2011

Estimates of the Social Cost of Carbon: Background and Results from the RICE-2011 Model

http://cowles.econ.yale.edu/P/cd/d18a/d1826.pdf
A new and important concept in global warming economics and policy is the social cost of carbon or SCC. This concept represents the economic cost caused by an additional ton of carbon-dioxide emissions or its equivalent. The present study describes the development of the concept as well as its analytical background. We estimate the SCC using an updated version of the RICE-2011 model. Additional concerns are uncertainty about different aspects of global warming as well as the treatment of different countries or generations. The most important results are: First, the estimated social cost of carbon for the current time (2015) including uncertainty, equity weighting, and risk aversion is $44 per ton of carbon (or $12 per ton CO_{2}) in 2005 US$ and international prices). Second, including uncertainty increases the expected value of the SCC by approximately 8 percent. Third, equity weighting generally tends to reduce the SCC. Finally, the major open issue concerning the SCC continues to be the appropriate discount rate.

by William Nordhaus
Yale University - Cowles Foundation for Research in Economics http://cowles.econ.yale.edu/
Box 208281; New Haven, Connecticut 06520-8281
Discussion Paper Number 1826; October, 2011

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