scholarly journals Tail-Hedge Discounting and the Social Cost of Carbon

2013 ◽  
Vol 51 (3) ◽  
pp. 873-882 ◽  
Author(s):  
Martin L Weitzman
Keyword(s):  
Climate Change ◽  
Social Cost ◽  
Cost Benefit Analysis ◽  
Cost Benefit ◽  
Social Cost Of Carbon ◽  
Climate Risks ◽  
The Social ◽  
Huge Impact ◽  
Adjusted Rate ◽  
Expected Payoffs

The choice of an overall discount rate for climate change investments depends critically on how different components of investment payoffs are discounted at differing rates reflecting their underlying risk characteristics. Such underlying rates can vary enormously, from ≈ 1 percent for idiosyncratic diversifiable risk to ≈ 7 percent for systematic nondiversifiable risk. Which risk-adjusted rate is chosen can have a huge impact on cost-benefit analysis. In this expository paper, I attempt to set forth in accessible language with a simple linear model what I think are some of the basic issues involved in discounting climate risks. The paper introduces a new concept that may be relevant for climate-change discounting: the degree to which an investment hedges against the bad tail of catastrophic damages by insuring positive expected payoffs even under the worst circumstances. The prototype application is calculating the social cost of carbon. (JEL C51, Q54, Q58)

scholarly journals SOCIAL AND PRIVATE PROFITABILITY OF TREE-BASED ADAPTATION OPTIONS TO CLIMATE CHANGE IN A DRYLAND AREA OF TUNISIA

New Medit ◽  
2019 ◽  
Vol 18 (2) ◽  
pp. 89-104
Author(s):  
Hamed Daly-Hassen ◽  
Mohamed Annabi ◽  
Caroline King-Okumu
Keyword(s):  
Climate Change ◽  
Social Cost ◽  
Cost Benefit Analysis ◽  
Cost Benefit ◽  
Olive Tree ◽  
Benefit Analysis ◽  
Tree Plantation ◽  
Agricultural Water Use ◽  
The Social ◽  
Olive Trees

Climate change exacerbates the effects of water scarcity on livelihoods. Governments can intervene by structuring incentives for agricultural adaptations so that farmers can choose the ones that create more benefits for the society as a whole. This requires consideration of a range of different benefits to different groups within the social cost-benefit analysis (CBA). We assess the social and private profitability of two alternative tree-based adaptation techniques that have received state support in the traditional barley cropping/rangeland systems in Central Tunisia: olive tree plantation, and intercropping with cactus. The results showed that society does not benefit from offering incentives for olive production. The production of irrigated olive trees without incentives is profitable for farmers and for society, while rainfed plantation is not profitable at all. However, it is possible for farmers to increase their incomes without increasing agricultural water use if they are encouraged to adopt intercropping with cactus to supplement livestock food and watering. The findings highlight scope for policies to balance between returns both for society, and for farmers, as revealed through the application of quantitative social CBA.

scholarly journals THE AGGREGATION DILEMMA IN CLIMATE CHANGE POLICY EVALUATION

2018 ◽  
Vol 09 (03) ◽  
pp. 1850008 ◽  
Author(s):  
INGMAR SCHUMACHER
Keyword(s):  
Climate Change ◽  
Integrated Assessment ◽  
Social Cost ◽  
Cost Benefit Analysis ◽  
Cost Benefit ◽  
Carbon Price ◽  
Integrated Assessment Model ◽  
Assessment Model ◽  
Social Cost Of Carbon ◽  
Integrated Assessment Models

We show that a policy maker who ignores regional data and instead relies on aggregated integrated assessment models is likely underestimating the carbon price and thus the required climate policy. Based on a simple theoretical model, we give conditions under which the Aggregation Dilemma is expected to play a role in climate change cost-benefit analysis. We then study the importance of the Aggregation Dilemma with the integrated assessment model RICE [Nordhaus and Boyer, (2000) Warning the World: Economic Models of Global Warming. MA: MIT Press]. Aggregating all regions of the RICE-99 model into one region yields a 40% lower social cost of carbon than the RICE model itself predicts. Based on extrapolating the results, a country-level integrated assessment model would give a more than eight times higher social cost of carbon compared to a fully aggregated model. We suggest that these tentative results require researchers to rethink the aggregation level used in integrated assessment models and to develop models at much lower levels of aggregation than currently available.

scholarly journals Estimates of the social cost of carbon have not changed over time

2021 ◽  
Author(s):  
Richard Tol
Keyword(s):  
Climate Change ◽  
Stationary Distribution ◽  
Social Cost ◽  
Meta Analysis ◽  
Kernel Density ◽  
Social Cost Of Carbon ◽  
Almost Everywhere ◽  
The Social ◽  
Carbon Prices ◽  
Over Time

Abstract Some claim that as knowledge about climate change accumulates, the social cost of carbon increases. A meta-analysis of published estimates shows that this is not the case. Correcting for inflation and emission year and controlling for the discount rate, kernel density decomposition reveals a stationary distribution. Actual carbon prices are almost everywhere below the estimated social cost of carbon.

scholarly journals The Social Cost of Carbon with Economic and Climate Risks

2019 ◽  
Vol 127 (6) ◽  
pp. 2684-2734 ◽  
Author(s):  
Yongyang Cai ◽  
Thomas S. Lontzek
Keyword(s):  
Social Cost ◽  
Social Cost Of Carbon ◽  
Climate Risks ◽  
The Social

The Use of a Social Cost of Carbon in Canadian Cost-Benefit Analysis

2013 ◽  
Vol 39 (Supplement 2) ◽  
pp. S67-S79 ◽  
Author(s):  
Anthony Heyes ◽  
Dylan Morgan ◽  
Nicholas Rivers
Keyword(s):  
Social Cost ◽  
Cost Benefit Analysis ◽  
Cost Benefit ◽  
Benefit Analysis ◽  
Social Cost Of Carbon

scholarly journals Fat Tails and the Social Cost of Carbon

2014 ◽  
Vol 104 (5) ◽  
pp. 544-546 ◽  
Author(s):  
Martin L. Weitzman
Keyword(s):  
Climate Change ◽  
Relative Risk ◽  
Risk Aversion ◽  
Strong Influence ◽  
Social Cost ◽  
Relative Risk Aversion ◽  
Fat Tails ◽  
Social Cost Of Carbon ◽  
The Social ◽  
Climate Damages

At high enough greenhouse gas concentrations, climate change might conceivably cause catastrophic damages with small but non-negligible probabilities. If the bad tail of climate damages is sufficiently fat, and if the coefficient of relative risk aversion is greater than one, the catastrophe-reducing insurance aspect of mitigation investments could in theory have a strong influence on raising the social cost of carbon. In this paper I exposit the influence of fat tails on climate change economics in a simple stark formulation focused on the social cost of carbon. I then attempt to place the basic underlying issues within a balanced perspective.

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