A simple formula for the social cost of carbon
van den Bijgaart,Inge Gerlagh,Reyer Liski,M.
van den Bijgaart,Inge
Gerlagh,Reyer
Liski,M.
Abstract
The social cost of carbon (SCC) is the monetized damage from emitting one unit of CO2 to the atmosphere, often obtained from computational Integrated Assessment Models (IAMs). We develop a closed-form formula that approximates the SCC for a general economy, and then explore the capacity of the analytical approach to capture the key SCC drivers and thus to replicate the results of the deterministic IAMs. The formula explains the parameter-driven SCC variation of a mainstream IAM without a systematic bias. The sensitivity analysis identifies and measures the performance limits of the closed-form formulas. We then use the analytic formula to structurally interpret a distribution of SCCs from deterministic IAMs, and develop an analytical breakdown and quantification of how different sets of parameters contribute to the SCC distribution. This allows the user of the formula to evaluate where particular parameter choices tend to place the resulting SCC outcome in the distribution of outcomes for the universe of deterministic IAMs.
Description
Date
2016-05
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Publisher
Research Projects
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Keywords
climate change, social cost of carbon, integrated assessment models, H23 - Externalities ; Redistributive Effects ; Environmental Taxes and Subsidies, Q54 - Climate ; Natural Disasters and Their Management ; Global Warming, Q48 - Government Policy, C68 - Computable General Equilibrium Models
Citation
van den Bijgaart, I, Gerlagh, R & Liski, M 2016, 'A simple formula for the social cost of carbon', Journal of Environmental Economics and Management, vol. 77, pp. 75-94. https://doi.org/10.1016/j.jeem.2016.01.005