Discussion Paper

Published as Journal Article »

No. 2011-30 | August 05, 2011

Simon Dietz

The Treatment of Risk and Uncertainty in the US Social Cost of Carbon for Regulatory Impact Analysis

Please cite the corresponding journal article

(Published in Special Issue The Social Cost of Carbon)

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Abstract

This note considers the treatment of risk and uncertainty in the recently established ‘social cost of carbon’ (SCC) for analysis of federal regulations in the United States. It argues that the analysis of the US Interagency Working Group on Social Cost of Carbon did not go far enough into the tail of low-probability, high-impact scenarios, and, via its approach to discounting, it mis-estimated climate risk, possibly hugely. Given the uncertainty about estimating the SCC, the note concludes by arguing that there is in fact much to commend an approach whereby a quantitative, long-term emissions target is chosen, and the price of carbon for regulatory impact analysis is then based on estimates of the marginal cost of abatement to achieve that very target.

Paper submitted to the special issue
The Social Cost of Carbon

JEL Classification

Q54

Cite As

Simon Dietz (2011). The Treatment of Risk and Uncertainty in the US Social Cost of Carbon for Regulatory Impact Analysis. Economics Discussion Papers, No 2011-30, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2011-30

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