Risk aversion, time preference, and the social cost of carbon

Anthoff, David, Tol, Richard S J and Yohe, Gary W (2009) Risk aversion, time preference, and the social cost of carbon. Environmental Research Letters, 4 (2). ISSN 1748-9326

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Abstract

The Stern Review reported a social cost of carbon of over $300/tC, calling for ambitious climate policy. We here conduct a systematic sensitivity analysis of this result on two crucial parameters: the rate of pure time preference, and the rate of risk aversion. We show that the social cost of carbon lies anywhere in between 0 and $120 000/tC. However, if we restrict these two parameters to matching observed behaviour, an expected social cost of carbon of $60/tC results. If we correct this estimate for income differences across the world, the social cost of carbon rises to over $200/tC.

Item Type: Article
Schools and Departments: School of Business, Management and Economics > Economics
Subjects: G Geography. Anthropology. Recreation > GE Environmental Sciences > GE170 Environmental policy
H Social Sciences > HB Economic theory. Demography
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Depositing User: Richard Tol
Date Deposited: 18 Apr 2012 08:56
Last Modified: 30 Nov 2012 17:11
URI: http://sro.sussex.ac.uk/id/eprint/38270
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