FEEM working papers "Note di lavoro" series
2012 .034

What Social Cost of Carbon? A mapping of the Climate Debate


Authors: Baptiste Perrissin Fabert, Patrice Dumas, Jean-Charles Hourcade
Series: Climate Change and Sustainable Development
Editor: Carlo Carraro
Keywords: Optimal control, Mitigation, Social Cost of Carbon, Uncertainty
JEL n.: Q54, Q21, 041, D81

Abstract

Given disparate beliefs about economic growth, technical change and damage caused by climate change, this paper starts with the seeming impossibility of determining a unique time profile of the social costs of carbon as a benchmark for climate negotiations and for infrastructure decisions that need to be made now in the absence of an inclusive international accord on climate policies. The paper demonstrates that determining a workable range of the social costs of carbon is however possible in a sequential decision-making framework that permits revising initial decisions in the light of new information. To do so, the paper exploits the results of a stochastic optimal control model run for more than 2000 scenarios that represent the set of beliefs presented about key uncertain parameters in the literature. The paper provides a heuristic mapping of the climate debate in the form of six “clubs of opinions” and shows the possibility of determining a range of social costs of carbon that might permit a compromise between the maximum range of “clubs” and those most likely to emerge in the future.

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