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Intertemporal Distribution, Suffciency, and the Social Cost of Carbon

Author

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  • Hänsel, Martin C.
  • Quaas, Martin F.
Abstract
We explore how the intertemporal distribution of well-being affects the social cost of carbon. In contrast to the literature that studies parameters of a particular social welfare function, such as the discount rate, we shift the focus and directly assume a parametric form for the intertemporal distribution of well-being. This has the advantage of avoiding explicit discounting choices, which has initiated much debate. Specifically, we consider a set of intertemporal distributions that reach a pre-specified steady-state level of "sufficient" well-being, or equivalently, after a pre-specified "end-of-growth horizon". We numerically illustrate our results in DICE and find that the social cost of carbon increases over-proportionally with the sufficiency level of well-being. While the social cost of carbon in 2015 is US$ 7 if the sufficiency level is four-fold the present level, it is US$ 30 if the sufficiency level is 15-fold and US$ 100 if the sufficiency level is 26-fold the present level. This shows in a transparent way how conceptions of intergenerational distributive justice drive the social cost of carbon.

Suggested Citation

  • Hänsel, Martin C. & Quaas, Martin F., 2018. "Intertemporal Distribution, Suffciency, and the Social Cost of Carbon," Open Access Publications from Kiel Institute for the World Economy 233103, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkie:233103
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    References listed on IDEAS

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    Cited by:

    1. David Anthoff & Richard S. J. Tol, 2022. "Testing the Dismal Theorem," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 9(5), pages 885-920.
    2. Moritz A. Drupp & Martin C. Hänsel, 2021. "Relative Prices and Climate Policy: How the Scarcity of Nonmarket Goods Drives Policy Evaluation," American Economic Journal: Economic Policy, American Economic Association, vol. 13(1), pages 168-201, February.
    3. Rogna, Marco & Vogt, Carla J., 2021. "Accounting for inequality aversion can justify the 2° C goal," Ruhr Economic Papers 925, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    4. Richard S. J. Tol, 2024. "Database for the meta-analysis of the social cost of carbon (v2024.0)," Papers 2402.09125, arXiv.org.
    5. Richard S.J. Tol, 2021. "Estimates of the social cost of carbon have not changed over time," Working Paper Series 0821, Department of Economics, University of Sussex Business School.
    6. Richard S.J. Tol, 2020. "Kernel density decomposition with an application to the social cost of carbon," Working Paper Series 0720, Department of Economics, University of Sussex Business School.
    7. Richard S. J. Tol, 2021. "Estimates of the social cost of carbon have increased over time," Papers 2105.03656, arXiv.org, revised Aug 2022.
    8. Marco Rogna & Carla J. Vogt, 2022. "Optimal climate policies under fairness preferences," Climatic Change, Springer, vol. 174(3), pages 1-20, October.

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    More about this item

    Keywords

    climate change; social cost of carbon; optimal tax; DICE; optimal growth; sustainability; social welfare function; discounting;
    All these keywords.

    JEL classification:

    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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