Research

The Social Cost of Carbon Emissions 

December 1, 2012

Working paper — Determining the social cost of carbon emissions (SCC) is a crucial step in the economic analysis of climate change policy.

Authors: Duncan Foley, Armon Rezai and Lance Taylor

This is clearly seen in the U.S. government's recent decision to use a range of estimates of the SCC centered at $21/ t CO2 ($77/t carbon) in cost-benefit analyses of proposed emission-control legislation. This note reviews the welfare economics theory fundamental to the estimation of the SCC in both static and intertemporal contexts, examining the effects of assumptions about the typical agent's pure rate of time preference and elasticity of marginal felicity of consumption, production and mitigation technology, and the magnitude of climate-change damage on estimates of the SCC. The paper was published in Economic Letters.

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