Journal Article
No. 2011-21 | December 20, 2011
Risk Premia and the Social Cost of Carbon: A Review
(Published in Special Issue The Social Cost of Carbon)


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, and potentially substantial, risk premium on the social cost of carbon is warranted.

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Cite As

Carolyn Kousky, Robert E. Kopp, and Roger M. Cooke (2011). Risk Premia and the Social Cost of Carbon: A Review. Economics: The Open-Access, Open-Assessment E-Journal, 5 (2011-21): 1–24.

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