What Social Cost of Carbon? A Mapping of the Climate Debate

Abstract

SummaryGiven disparate beliefs about economic growth, technical change and damage caused by climate change, this paper starts with the seeming impossibility of determining a unique time profile of the social costs of carbon as a benchmark for climate negotiations and for infrastructure decisions that need to be made now in the absence of an inclusive international accord on climate policies. The paper demonstrates that determining a workable range of the social costs of carbon is however possible in a sequential decisionmaking framework that permits revising initial decisions in the light of new information. To do so, the paper exploits the results of a stochastic optimal control model run for more than 2000 scenarios that represent the set of beliefs presented about key uncertain parameters in the literature. The paper provides a heuristic mapping of the climate debate in the form of six "clubs of opinions" and shows the possibility of determining a range of social costs of carbon that might permit a compromise between the maximum range of "clubs" and those most likely to emerge in the future. Abstract Given disparate beliefs about economic growth, technical change and damage caused by climate change, this paper starts with the seeming impossibility of determining a unique time profile of the social costs of carbon as a benchmark for climate negotiations and for infrastructure decisions that need to be made now in the absence of an inclusive international accord on climate policies. The paper demonstrates that determining a workable range of the social costs of carbon is however possible in a sequential decision-making framework that permits revising initial decisions in the light of new information. To do so, the paper exploits the results of a stochastic optimal control model run for more than 2000 scenarios that represent the set of beliefs presented about key uncertain parameters in the literature. The paper provides a heuristic mapping of the climate debate in the form of six "clubs of opinions" and shows the possibility of determining a range of social costs of carbon that might permit a compromise between the maximum range of "clubs" and those most likely to emerge in the future.

Disentangling the Stern/Nordhaus Controversy: Beyond the Discounting Clash

“…This paper aims at appraising the relative impact on results of those beliefs and qualifying the impact of pure time preference on climate policies. To carry out this analysis we use RESPONSE (Ambrosi et al, 2003;Perrissin-Fabert et al, 2012) which has the same basic modelling structure as DICE (Nordhaus' model) and PAGE (Stern's model) and thus makes it possible to compare Stern and Nordaus' worldviews within a unique consistent framework. We show that the rate of pure time preference has a significant impact on the SCC but cannot alone account for differences in climate policies recommendations.…”