Discussion Paper

No. 2011-19 | June 21, 2011
Risk Premia and the Social Cost of Carbon: A Review
(Published in Special Issue The Social Cost of Carbon)

Abstract

Reducing greenhouse gas emissions not only lowers expected damages from climate change but also reduces the risk of catastrophic impacts. However, estimates of the social cost of carbon, which measures the marginal value of carbon dioxide abatement, often do not capture this risk reduction benefit. Risk-averse individuals are willing to pay a risk premium, an additional amount beyond the difference in expected damages, to reduce risks. The authors review methods used and estimates obtained for calculating a risk premium to be included in the social cost of carbon. While more research is needed in this area, work to date suggests a positive risk premium on the social cost of carbon is warranted.

Paper submitted to the special issue
The Social Cost of Carbon

JEL Classification

Q54

Cite As

Carolyn Kousky, Robert E. Kopp, and Roger M. Cooke (2011). Risk Premia and the Social Cost of Carbon: A Review. Economics Discussion Papers, No 2011-19, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2011-19

Assessment



Comments and Questions


G Y - Article of Carolyn Kousky, Robert E. Kopp, and Roger M. Cooke
June 22, 2011 - 07:58

A useful review of an important issue of economics of ecology.


Anonymous - Referee Report 1
August 10, 2011 - 08:50

see attached file


Cameron Hepburn - Invited Reader Comment
August 15, 2011 - 10:08

see attached file


Carolyn Kousky - Response to Referee 1
August 26, 2011 - 15:55

On behalf of the authors, we would like to thank this referee for the helpful comments. We will make the three suggested changes in our final revision.


Anonymous - Referee Report 2
September 05, 2011 - 09:46

see attached file


Carolyn Kousky - Response to Referee 2
October 07, 2011 - 20:37

On behalf of the authors, we would like to thank the second referee for his/her review and helpful comments. We have a few responses:

Comment 1: We agree that many of the arguments apply to non-marginal changes, as well, and we should note this more clearly in the ...[more]

... text.
Comment 2: Thank you – we agree.
Comment 3: We have gone back and forth amongst ourselves on how much discussion to include on ambiguity aversion. We have also gotten conflicting feedback on its inclusion and the current discussion is a compromise among the conflicting comments we received. We will revisit this issue among ourselves again in the revision in light of the referee’s comment.
Comment 4: This is a fair comment. We will strengthen the findings and conclusion in the revision.

Thanks again.


Carolyn Kousky - Revised Version
November 21, 2011 - 11:10

see attached file


Carolyn Kousky - Response to Referees
November 21, 2011 - 11:11

see attached file


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