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Discussion Paper

No. 2011-40 | September 23, 2011
Climate Risks and Carbon Prices: Revising the Social Cost of Carbon
(Published in Special Issue The Social Cost of Carbon)

Abstract

The social cost of carbon – or marginal damage caused by an additional ton of carbon dioxide emissions – has been estimated by a U.S. government working group at $21 in 2010. That calculation, however, omits many of the biggest risks associated with climate change, and downplays the impact of our current emissions on future generations. Our reanalysis explores the effects of uncertainty about climate sensitivity, the shape of the damage function, and the discount rate. We show that the social cost of carbon is uncertain across a broad range, and could be much higher than $21. In our worst case, it could be almost $900 in 2010, rising to $1,500 in 2050.
The most ambitious scenarios for eliminating carbon dioxide emissions as rapidly as technologically feasible (reaching zero or negative net global emissions by the end of this century) require spending up to $150 to $500 per ton of reductions in carbon dioxide emissions by 2050. Using a reasonable set of alternative assumptions, therefore, the damages from a ton of carbon dioxide emissions in 2050 could exceed the cost of reducing emissions at the maximum technically feasible rate. Once this is the case, the exact value of the social cost of carbon loses importance: the clear policy prescription is to reduce emissions a rapidly as possible, and cost-effectiveness analysis offers better insights for climate policy than cost-benefit analysis.

Paper submitted to the special issue
The Social Cost of Carbon
 

JEL Classification

Q54 Q58

Cite As

Frank Ackerman and Elizabeth A. Stanton (2011). Climate Risks and Carbon Prices: Revising the Social Cost of Carbon. Economics Discussion Papers, No 2011-40, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2011-40

Assessment



Comments and Questions


Anonymous - The Social Costs of Carbon Dioxide
September 28, 2011 - 07:56

When you reassess the social costs of hydrocarbon escalating from the original calculations of $21 to US$900 to US$1500 in the worst case scenario, the assumptions underlying this should be outllined in the short summary of the paper. I hope this comment is useful.


Anonymous - Referee Report 1
November 22, 2011 - 09:53

See attached file


Anonymous - Referee Report 2
December 05, 2011 - 11:57

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Frank Ackermann - Reply to Referee Reports
January 23, 2012 - 10:39

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Anonymous - Referee Report 3
January 23, 2012 - 15:15

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Frank Ackermann - Revised Version
January 24, 2012 - 16:21

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Frank Ackermann - Reply to Referee Report 3
February 28, 2012 - 11:19

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