The social cost of carbon with intragenerational inequality and economic uncertainty

Frederick (Rick) van der Ploeg, Johannes Emmerling and Ben Groom

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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.

Keywords: social discount rate; social cost of carbon; intra- and intergenerational inequality aversion; risk aversion; inequality; growth; uncertainty (search for similar items in EconPapers)
JEL-codes: C61 D31 D62 D81 G12 H23 Q54 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2023-01-10
New Economics Papers: this item is included in nep-ene, nep-env and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://eprints.lse.ac.uk/117901/ Open access version. (application/pdf)

Related works:
Working Paper: The social cost of carbon with intragenerational inequality and economic uncertainty (2023)
Working Paper: The Social Cost of Carbon with Intragenerational Inequality and Economic Uncertainty (2023)
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