How do we evaluate the cost of carbon emission ?

Abstract

The Social Cost of Carbon (SCC) estimates damage in social consumption or GDP caused by one extra ton of carbon dioxide (CO2) emission each year. It is monetary terms of social impact of a ton of CO2 emission. Its calculation could be discounted-utilitarian or non-discounted. The dominant social welfare functions in policy making is discounted-utilitarian. The principal objective of this study is recognizing the way economists’ measure cost of carbon emission, wherever and whoever emits. With supportive objective of updating very recent carbon cost estimate using different assumptions for wide-ranging parameters explicitly discount rate. Besides, considerate attention had given to outlooks about Integrated Assessment Models (IAM’s) approaches. To attain these objectives the paper had look into numerous published and unpublished literatures. Thus, empirical literature shows, choice of discount rates are major deriver of variation in social cost of carbon estimates. As shown, in the discussion, United States Government Interagency Working Group (2010) estimated SCC values are: $6.8, $ 26.3, $ 41.7, & $ 80.7 (2007$/metric ton CO2) for 5%, 3%, 2.5% and 95 percentile hard case respectively in 2020. However, the Interagency Working Group revised result in (2013, 2016), the SCC values are: $12, $42, $62, & $123 (2007$/metric ton CO2) for 5%, 3%, 2.5% and 95 percentile hard case respectively for the same year considering. The literature also shows the frequently used IAMs’ have generated different estimates. Taking FUND and PAGE, with absolutely contrasting on assumptions to “Catastrophes” and GDP endogenous empirical finding shows largest deviation in estimate for same level of discount rates. There are also researches employed in developing countries using Ricardian cross-section. The author recommends that more integrated mega level multidisciplinary studies needs to be financed. Further scientific research by scholars who developed the existing models needed to look work more on challenges.

Date of Award	31 May 2019
Original language	English
Awarding Institution	University of Namur
Supervisor	Jean-Marie BALAND (Supervisor) & Paola Villar (Co-Supervisor)