The Influence of the Specification of Climate Change Damages on the Social Cost of Carbon

By Robert E Kopp, Alexander Golub, Nathaniel Keohane, C. Onda. 2012

67 citations recorded by the source corpus.

Abstract Drawing upon climate change damage specifications previously proposed in the literature that the authors have calibrated to a common level of damages at 2.5°C, the authors examine the effect upon the social cost of carbon (SCC) of varying damage specifications in a DICE-like integrated assessment model. They find that SCC estimates are highly sensitive to uncertainty in extrapolating damages to high temperatures at moderate-to-high levels of risk aversion, but only modestly so at low levels of risk aversion. While in the absence of risk aversion, all of the SCC estimates but one agree within a factor of two, with a moderate level of risk aversion included, the differences among estimates grow greatly. For example, one composite damage specification, combining elements of different literature-derived specifications and roughly taking into account calibration uncertainty, yields SCC values 32% higher than the standard quadratic DICE damage function in the absence of risk aversion. With a coefficient of relative risk aversion of 1.4, however, the same uncertain specification yields SCC values almost triple those of the standard function. The authors conclude that failure to consider damages uncertainty and risk aversion jointly can lead to significant underestimation of the SCC.

Subfields: Economics and Econometrics, Environmental Engineering

View Paper: https://www.semanticscholar.org/paper/1e8dba8bd521256da3da96965b8f2c89344866fc

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

In Environmental Engineering

Citations in the corpus

Climate Risks and Carbon Prices: Revising the Social Cost of Carbon (2012, unknown): “Kopp et al. (2011) modify the Working Group’s version of the DICE model by including uncertainty in the damage function and varying the level of risk aversion in the discount rate.”
A retrospective analysis of benefits and impacts of U.S. renewable portfolio standards (2016, background): “Because of the uncertainties involved, estimates of the SCC span a wide range (IPCC 2014b; Tol 2011; Weyant 2014), leading some to suggest possible improvements to SCC estimates and procedures (Ackerman and Stanton 2012; Arrow et al. 2013; Johnson and Hope 2012; Kopp et al. 2012; Pizer et al. 2014; ”
Optimal climate change mitigation under long-term growth uncertainty: Stochastic integrated assessment and analytic findings (2014, background): “…predominantly addresses uncertainty by averaging deterministic Monte-Carlo runs (Richels et al. 2004, Hope 2006, Nordhaus 2008, Dietz 2009, Anthoff et al. 2009, Anthoff & Tol 2009, Ackerman et al. 2010, Interagency Working Group on Social Cost of Carbon 2010, Pycroft et al. 2011, Kopp et al. 2012).”