The Social Cost of Carbon in a Non-Cooperative World

54 Pages Posted: 11 Jul 2019 Last revised: 20 Dec 2019

See all articles by Christoph Hambel

Christoph Hambel

Goethe University Frankfurt

Holger Kraft

Goethe University Frankfurt

Eduardo S. Schwartz

Simon Fraser University (SFU); University of California, Los Angeles (UCLA) - Finance Area; National Bureau of Economic Research (NBER)

Date Written: December 19, 2019

Abstract

The recent literature has derived simple formulas for the Social Cost of Carbon (SCC) that are easy to interpret, but that only apply to the global economy. This is an issue since international transfers to sustain the global optimum with the same carbon price for all countries are still lacking after thirty years of climate summits. The main research objective of our paper is to obtain tractable analytical and interpretable formulas for the SCC, the optimal carbon taxes, and the optimal consumption-abatement strategies in a non-cooperative world. We find that the optimal taxes are proportional to national GDP and can be decomposed into a domestic and a foreign component where the latter stems from trade. Besides, heterogeneity in country-specific damage functions together with the size of international trade can significantly affect the regional distribution of the SCC.

Keywords: Climate change economics, Carbon abatement, Non-cooperative game, Differential game, Trade, DICE

JEL Classification: D81, Q5, Q54, C73

Suggested Citation

Hambel, Christoph and Kraft, Holger and Schwartz, Eduardo S., The Social Cost of Carbon in a Non-Cooperative World (December 19, 2019). Available at SSRN: https://ssrn.com/abstract=3418249 or http://dx.doi.org/10.2139/ssrn.3418249

Christoph Hambel

Goethe University Frankfurt ( email )

Faculty of Economics and Business
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Holger Kraft (Contact Author)

Goethe University Frankfurt ( email )

Faculty of Economics and Business
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Eduardo S. Schwartz

Simon Fraser University (SFU) ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

University of California, Los Angeles (UCLA) - Finance Area ( email )

Los Angeles, CA 90095-1481
United States
310-825-1953 (Phone)
310-206-5455 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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