The Social Cost of Carbon with Intragenerational Inequality and Economic Uncertainty

Frederick (Rick) van der Ploeg, Johannes Emmerling and Ben Groom
Additional contact information
Johannes Emmerling: RFF-CMCC European Institute on Economics and the Environment, Centro Euro-Mediterraneo sui Cambiamenti Climatici
Ben Groom: Department of Economics, University of Exeter

No 2301, Discussion Papers from University of Exeter, Department of Economics

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 SSC 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)
Date: 2023-01-05
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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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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