A discounting rule for the social cost of carbon

Loading...
Thumbnail Image

Date

2022-09-01

Journal Title

Journal ISSN

Volume Title

Repository Usage Stats

78
views
302
downloads

Citation Stats

Abstract

We develop a discounting rule for estimating the social cost of carbon (SCC) given uncertain economic growth. Diminishing marginal utility of income implies a relationship between the discount rate term structure and economic growth uncertainty. In the classic Ramsey framework, this relationship is governed by parameters reflecting pure time preference and the elasticity of the marginal utility of consumption, yet disagreement remains about the values of these parameters. We calibrate these parameters to match empirical evidence on both the future interest rate term structure and economic growth uncertainty, while also maintaining consistency with discount rates used for shorter-term benefit-cost analysis. Such an integrated approach is crucial amid growth uncertainty, where growth is also a key determinant of climate damages. This results in an empirically driven, stochastic discounting rule to be used in estimating the SCC that also accounts for the correlation between climate damage estimates and discount rates.

Department

Description

Provenance

Citation

Published Version (Please cite this version)

10.1086/718145

Publication Info

Newell, RG, WA Pizer and BC Prest (2022). A discounting rule for the social cost of carbon. Journal of the Association of Environmental and Resource Economists, 9(5). pp. 1017–1046. 10.1086/718145 Retrieved from https://hdl.handle.net/10161/25669.

This is constructed from limited available data and may be imprecise. To cite this article, please review & use the official citation provided by the journal.


Unless otherwise indicated, scholarly articles published by Duke faculty members are made available here with a CC-BY-NC (Creative Commons Attribution Non-Commercial) license, as enabled by the Duke Open Access Policy. If you wish to use the materials in ways not already permitted under CC-BY-NC, please consult the copyright owner. Other materials are made available here through the author’s grant of a non-exclusive license to make their work openly accessible.