Calculating the Social Costs of Carbon without knowing preferences: Comment on “A rapid assessment model for understanding the social cost of carbon”

Research output: Contribution to journalComment/Letter to the editorScientificpeer-review

Abstract

The Social Costs of Carbon (SCC) equals the marginal welfare loss associated with one unit of emitted CO2, divided by the marginal welfare gain associated with one unit of consumption. In stochastic assessments, both the nominator and denominator can depend on uncertain parameters; specifically they depend on the (implicit) scaling of the welfare function with the parameters. I discuss some pitfalls when calculating the expected value or the certainty equivalent of the SCC, and show that a mistaken procedure easily leads to very high or very low estimates for the SCC. I use the paper by Newbold et al. (2013) as an illustration.
Original languageEnglish
Article number1450004
Number of pages7
JournalClimate Change Economics
Volume5
Issue number2
DOIs
Publication statusPublished - May 2014

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carbon
social cost
Social costs
Carbon
parameter
consumption
loss
Certainty equivalent
Welfare function
Co2
Expected value
Welfare gains
Scaling
Welfare loss

Keywords

  • climate change
  • social cost of carbon
  • integrated assessment models
  • uncertainty

Cite this

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abstract = "The Social Costs of Carbon (SCC) equals the marginal welfare loss associated with one unit of emitted CO2, divided by the marginal welfare gain associated with one unit of consumption. In stochastic assessments, both the nominator and denominator can depend on uncertain parameters; specifically they depend on the (implicit) scaling of the welfare function with the parameters. I discuss some pitfalls when calculating the expected value or the certainty equivalent of the SCC, and show that a mistaken procedure easily leads to very high or very low estimates for the SCC. I use the paper by Newbold et al. (2013) as an illustration.",
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Calculating the Social Costs of Carbon without knowing preferences : Comment on “A rapid assessment model for understanding the social cost of carbon”. / Gerlagh, R.

In: Climate Change Economics, Vol. 5, No. 2, 1450004 , 05.2014.

Research output: Contribution to journalComment/Letter to the editorScientificpeer-review

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T1 - Calculating the Social Costs of Carbon without knowing preferences

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N2 - The Social Costs of Carbon (SCC) equals the marginal welfare loss associated with one unit of emitted CO2, divided by the marginal welfare gain associated with one unit of consumption. In stochastic assessments, both the nominator and denominator can depend on uncertain parameters; specifically they depend on the (implicit) scaling of the welfare function with the parameters. I discuss some pitfalls when calculating the expected value or the certainty equivalent of the SCC, and show that a mistaken procedure easily leads to very high or very low estimates for the SCC. I use the paper by Newbold et al. (2013) as an illustration.

AB - The Social Costs of Carbon (SCC) equals the marginal welfare loss associated with one unit of emitted CO2, divided by the marginal welfare gain associated with one unit of consumption. In stochastic assessments, both the nominator and denominator can depend on uncertain parameters; specifically they depend on the (implicit) scaling of the welfare function with the parameters. I discuss some pitfalls when calculating the expected value or the certainty equivalent of the SCC, and show that a mistaken procedure easily leads to very high or very low estimates for the SCC. I use the paper by Newbold et al. (2013) as an illustration.

KW - climate change

KW - social cost of carbon

KW - integrated assessment models

KW - uncertainty

U2 - 10.1142/S2010007814500043

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M3 - Comment/Letter to the editor

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JO - Climate Change Economics

JF - Climate Change Economics

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