Discounting and the social cost of carbon: A closer look at uncertainty

By J. Guo, Cameron Hepburn, Richard S. J. Tol, David Anthoff. 2006

181 citations recorded by the source corpus.

Recently, in the economics literature, several papers have put forward arguments for using a declining discount rate in social-cost benefit analysis. This paper examines the impact of employing a declining discount rate on the social cost of carbon—the marginal social damage from a ton of emitted carbon. Six declining discounting schemes are implemented in the FUND 2.8 integrated assessment model, including the recent amendments to the Green Book of HM Treasury (Treasury, H.M., 2003. The Greenbook: Appraisal and Evaluation in Central Government. TSO, London). We find that using a declining schedule of discount rates increases the social cost of carbon estimate by as little as 10% or by as much as a factor of 40, depending upon the scenario selected. Although the range of plausible estimates is large, using declining discounting schemes in FUND 2.8 in most cases does not yield values at the £70/tC level suggested by UK DEFRA [Clarkson, R., Deyes, K., 2002. Estimating the social cost of carbon emissions. Government Economic Service Working Paper. HM Treasury, London]. Indeed, only at the higher end of the values of social cost of carbon found here would many climate change related policies – such as the Kyoto Protocol – pass a cost-benefit analysis. This conclusion, however, does not necessarily undermine the ethical and political economic reasons for supporting international collective action on climate change.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/7383473502f95e796057762455feee2356a7c02b

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Citations in the corpus

Why Worry about Climate Change? A Research Agenda (2008, unknown): “A number of new studies have appeared since (Ceronsky et al., 2005; Downing et al., 2005; Guo et al., 2006; Hope, 2006; Wahba and Hope, 2006) – all in response to the faux pas of HM Treasury (Clarkson and Deyes, 2002; cf. Pearce, 2003).”
Targets for global climate policy: an overview (2013, background): “This implies, obviously, that ''optimal'' emission control is more stringent (Guo et al., 2006; Newell and Pizer, 2003).”
The Social Cost of Carbon: Trends, Outliers and Catastrophes (2008, unknown): “Downing et al. 2005 1.000 50.8 0 0 0 0 0 NA NA 1 Guo et al. 2006 0.016 58.0 1 0 1 1 1 NA 0.0 0”
The Stern Review of the Economics of Climate Change: A Comment (2006, background): “See Guo et al. (2006) for a discussion of discount rates and marginal damage costs of CO2 emissions.”
Discounting for Climate Change (2009, unknown): “In many ways, FUND is a standard integrated assessment model (Guo et al. 2006;Tol 1997;Tol 1999;Tol 2006).”