Working Paper: NBER ID: w17540
Authors: William D. Nordhaus
Abstract: 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 $12 per ton CO2) in 2005 US$ 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.
Keywords: Social Cost of Carbon; Global Warming; RICE Model; Climate Change; Equity Weighting
JEL Codes: H21; H23; H87; Q5; Q54
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Uncertainty (D89) | Social Cost of Carbon (SCC) (H43) |
| Equity weighting (G12) | Social Cost of Carbon (SCC) (H43) |
| Risk aversion (D81) | Social Cost of Carbon (SCC) (H43) |
| Discount rate (E43) | Social Cost of Carbon (SCC) (H43) |
| Social Cost of Carbon (SCC) (H43) | Welfare (I38) |