Wednesday, January 14, 2015

The Social Cost Of Carbon May Be Underestimated By Common Models

The EPA in the US uses the average cost of three IAM models to estimate the social cost per ton of carbon emissions at $37.  One of the assumptions in the IAM models is that carbon emissions affect the level of economic output, but they do not alter the growth rate of the economy.  When that assumption is relaxed, the social cost of a ton of carbon may be as high as $220.  That would justify more costly mitigation programs using the standard cost/benefit models in use.  It is possible, however, that mitigation costs may also reduce the econometric growth rate. 

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