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The treatment of risk and uncertainty in the US social cost of carbon for regulatory impact analysis

Dietz, Simon (2012) The treatment of risk and uncertainty in the US social cost of carbon for regulatory impact analysis. Economics: the Open-Access, Open-Assessment E-Journal, 6. ISSN 1864-6042

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Identification Number: 10.5018/economics-ejournal.ja.2012-18

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.

Item Type: Article
Official URL: http://www.economics-ejournal.org/
Additional Information: © 2012 Economics: the open-access, open-assessment e-journal
Subjects: G Geography. Anthropology. Recreation > GE Environmental Sciences
H Social Sciences > HC Economic History and Conditions
H Social Sciences > HV Social pathology. Social and public welfare. Criminology
JEL classification: Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q54 - Climate; Natural Disasters
Sets: Departments > Geography and Environment
Research centres and groups > Grantham Research Institute on Climate Change and the Environment
Collections > Economists Online
Date Deposited: 03 Sep 2012 15:59
Last Modified: 03 Sep 2012 16:00
URI: http://eprints.lse.ac.uk/id/eprint/45668

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