The Social Cost of Carbon and the Ramsey Rule

27 Pages Posted: 6 Nov 2019

See all articles by Cees Withagen

Cees Withagen

Free University of Amsterdam; Tilburg University

Date Written: July 31, 2019

Abstract

The objective of this paper is to critically assess the use of simple rules for the social cost of carbon (SCC) that employ a rudimentary form of the Ramsey Rule. Two interrelated caveats apply. First, if climate change poses a serious problem, it is hard to justify an exogenous constant growth rate of consumption and GDP, as is done in several contributions by prominent scholars. Second, to derive the optimal SCC one needs full knowledge of the entire future, in spite of the use of popular ways to try to get around this. Moreover, it is shown that some simple rules suffer from inconsistencies in their derivation.

Keywords: social cost of carbon, Ramsey Rule

JEL Classification: Q540

Suggested Citation

Withagen, Cees A. M., The Social Cost of Carbon and the Ramsey Rule (July 31, 2019). CESifo Working Paper No. 7359. Available at SSRN: https://ssrn.com/abstract=3338687

Cees A. M. Withagen (Contact Author)

Free University of Amsterdam ( email )

Tinbergen Institute De Boelelaan 1105
1081 HV Amsterdam
Netherlands

Tilburg University ( email )

Postbus 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

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