Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/237779 
Year of Publication: 
2021
Series/Report no.: 
Tinbergen Institute Discussion Paper No. TI 2021-046/VI
Publisher: 
Tinbergen Institute, Amsterdam and Rotterdam
Abstract: 
The social cost of carbon is the expected present value of damages from emitting one ton of carbon today. We use perturbation theory to derive an approximate tractable expression for this cost adjusted for climatic and economic risk. We allow for different aversion to risk and intertemporal fluctuations, skewness and dynamics in the risk distributions of climate sensitivity and the damage ratio, and correlated shocks. We identify prudence, insurance, and exposure effects, reproduce earlier analytical results, and offer analytical insights into numerical results on the effects of economic and damage ratio uncertainty and convex damages on the optimal carbon price.
Subjects: 
precaution
insurance
exposure
economic and climatic and damage uncertainties
skewness
mean reversion
correlated risks
risk aversion
intergenerational inequality aversion
convex damages
JEL: 
H21
Q51
Q54
Document Type: 
Working Paper

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