The Social Cost of Carbon and the Ramsey Rule
27 Pages Posted: 6 Nov 2019
Date Written: July 31, 2019
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: Suggested Citation