The Influence of the Specification of Climate Change Damages on the Social Cost of Carbon

42 Pages Posted: 13 May 2012

See all articles by Robert E. Kopp

Robert E. Kopp

Rutgers, The State University of New Jersey - New Brunswick/Piscataway

Alexander Golub

Environmental Defense

Nathaniel O. Keohane

Yale University - School of Management

Chikara Onda

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Date Written: 2012

Abstract

Drawing upon climate change damage specifications previously proposed in the literature that the authors have calibrated to a common level of damages at 2.5 C, the authors examine the effect upon the social cost of carbon (SCC) of varying damage specifications in a DICE-like integrated assessment model. They find that SCC estimates are highly sensitive to uncertainty in extrapolating damages to high temperatures at moderate-to-high levels of risk aversion, but only modestly so at low levels of risk aversion. While in the absence of risk aversion, all of the SCC estimates but one agree within a factor of two, with a moderate level of risk aversion included, the differences among estimates grow greatly. For example, one composite damage specification, combining elements of different literature-derived specifications and roughly taking into account calibration uncertainty, yields SCC values 32% higher than the standard quadratic DICE damage function in the absence of risk aversion. With a coefficient of relative risk aversion of 1.4, however, the same uncertain specification yields SCC values almost triple those of the standard function. The authors conclude that failure to consider damages uncertainty and risk aversion jointly can lead to significant underestimation of the SCC.

Keywords: climate change, social cost of carbon, integrated assessment modeling

JEL Classification: Q54, Q58

Suggested Citation

Kopp, Robert E. and Golub, Alexander and Keohane, Nathaniel O. and Onda, Chikara, The Influence of the Specification of Climate Change Damages on the Social Cost of Carbon (2012). Economics: The Open-Access, Open-Assessment E-Journal, Vol. 6, 2012-13. Available at SSRN: https://ssrn.com/abstract=2056944 or http://dx.doi.org/10.5018/economics-ejournal.ja.2012-13

Robert E. Kopp (Contact Author)

Rutgers, The State University of New Jersey - New Brunswick/Piscataway ( email )

HOME PAGE: http://www.bobkopp.net/

Alexander Golub

Environmental Defense ( email )

New York, Nat'l Headquarters
257 Park Avenue South
New York, NY 10010
United States
202-387-3500 (Phone)

Nathaniel O. Keohane

Yale University - School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

Chikara Onda

affiliation not provided to SSRN

No Address Available

Register to save articles to
your library

Register

Paper statistics

Downloads
109
Abstract Views
645
rank
196,553
PlumX Metrics