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Robustness of a Simple Rule for the Social Cost of Carbon

Armon Rezai and Frederick (Rick) van der Ploeg

No 4703, CESifo Working Paper Series from CESifo

Abstract: The optimal social cost of carbon is in general equilibrium proportional to GDP if utility is logarithmic, production is Cobb-Douglas, depreciation is 100% every period, climate damages as fraction of production decline exponentially with the stock of atmospheric carbon, and fossil fuel extraction does not require capital. The time profile and size of the optimal carbon tax corresponding to this simple rule are not robust to more convex climate damages, smaller elasticities of factor substitution and non-unitary coefficients of relative intergenerational inequality aversion. The optimal timing of energy transitions and the amount of fossil fuel reserves to be locked up in the earth are also not accurately predicted by this framework. Still, in terms of welfare and global warming the simple rule for the optimal social cost of carbon manages to get quite close to the first best.

Keywords: social cost of carbon; Ramsey growth; climate damages; energy transitions; stranded fossil; fuel assets; robustness (search for similar items in EconPapers)
JEL-codes: H21 Q51 Q54 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Robustness of a simple rule for the social cost of carbon (2015) Downloads
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