The social cost of carbon with intragenerational inequality and economic uncertainty

van der Ploeg, Frederick, Emmerling, Johannes and Groom, Ben ORCID: 0000-0003-0729-143X (2023) The social cost of carbon with intragenerational inequality and economic uncertainty. CCCEP Working Paper (414). Centre for Climate Change Economics and Policy, London, UK.

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Abstract

An analytical formula is presented for the Social Cost of Carbon (SCC) taking account of intragenerational income inequality, in addition to intergenerational income inequality, macro-economic uncertainty and rare disasters to economic growth. The social discount rate is adjusted for intra- and intergenerational inequality aversion and risk aversion. If growth reduces intragenerational inequality, the SCC is lower than with inequality-neutral growth, especially if intra- and intergenerational inequality aversion are high. Calibrated to the observed interest rate and risk premium, the SCC in 2020 is $125/tCO2 without considering intragenerational inequality, $81/tCO2 if intragenerational inequality decreases over time, as a continuation of historical trends suggests (based on Shared Socioeconomic Pathway (SSP) 2), and $213/tCO2 if inequality increases (SSP4). Intragenerational inequality has a similar order of effect on the SCC as accounting for rare macroeconomic disasters.

Item Type:	Monograph (Working Paper)
Official URL:	https://www.cccep.ac.uk/
Additional Information:	© 2023 The Authors
Divisions:	Grantham Research Institute
Subjects:	G Geography. Anthropology. Recreation > GE Environmental Sciences H Social Sciences > HC Economic History and Conditions H Social Sciences > HB Economic Theory
JEL classification:	C - Mathematical and Quantitative Methods > C6 - Mathematical Methods and Programming > C61 - Optimization Techniques; Programming Models; Dynamic Analysis D - Microeconomics > D3 - Distribution > D31 - Personal Income, Wealth, and Their Distributions D - Microeconomics > D6 - Welfare Economics > D62 - Externalities D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H23 - Externalities; Redistributive Effects; Environmental Taxes and Subsidies Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q54 - Climate; Natural Disasters
Date Deposited:	16 Jan 2023 14:21
Last Modified:	15 Sep 2023 23:58
URI:	http://eprints.lse.ac.uk/id/eprint/117901

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