We analyze the role of ethical values in the determination of the social cost of carbon, arguing that the familiar debate about discounting is too narrow. Other ethical issues are equally important to computing the social cost of carbon, and we highlight inequality, risk, and population ethics. Although the usual approach, in the economics of cost-benefit analysis for climate policy, is confined to a utilitarian axiology, the methodology of the social cost of carbon is rather flexible and can be expanded (...) to a broader set of social-welfare approaches. [Open access]. (shrink)

A question arising from the COVID-19 crisis is whether the merits of cases for climate policies have been affected. This article focuses on carbon pricing, in the form of either carbon taxes or emissions trading. It discusses the extent to which relative costs and benefits of introducing carbon pricing may have changed in the context of COVID-19, during both the crisis and the recovery period to follow. In several ways, the case for introducing a carbon price is stronger during the (...) COVID-19 crisis than under normal conditions. Oil costs are lower than normal, so we would expect less harm to consumers compared to normal conditions. Governments have immediate need for diversified new revenue streams in light of both decreased tax receipts and greater use of social safety nets. Finally, supply and demand shocks have led to already destabilized supply-side activities, and carbon pricing would allow this destabilization to equilibrate around greener production for the long-term. The strengthening of the case for introducing carbon pricing now is highly relevant to discussions about recovery measures, especially in the context of policy announcements from the European Union and United States House of Representatives. Key Policy Insights: • Persistently low oil prices mean that consumers will face lower pain from carbon pricing than under normal conditions. • Many consumers are more price-sensitive during the COVID-19 context, which suggests that a greater relative burden from carbon prices would fall upon producers as opposed to consumers than under normal conditions. • Carbon prices in the COVID-19 context can introduce new revenue streams, assisting with fiscal holes or with other green priorities. • Carbon pricing would contribute to a more sustainable COVID-19 recovery period, since many of the costs of revamping supply chains are already being felt while idled labor capacity can be incorporated into firms with lower carbon-intensity. (shrink)

Future population growth is uncertain and matters for climate policy: higher growth entails more emissions and means more people will be vulnerable to climate-related impacts. We show that how future population is valued importantly determines mitigation decisions. Using the Dynamic Integrated Climate-Economy model, we explore two approaches to valuing population: a discounted version of total utilitarianism (TU), which considers total wellbeing and is standard in social cost of carbon dioxide (SCC) models, and of average utilitarianism (AU), which ignores population size (...) and sums only each time period’s discounted average wellbeing. Under both approaches, as population increases the SCC increases, but optimal peak temperature decreases. The effect is larger under TU, because it responds to the fact that a larger population means climate change hurts more people: for example, in 2025, assuming the United Nations (UN)-high rather than UN-low population scenario entails an increase in the SCC of 85% under TU vs. 5% under AU. The difference in the SCC between the two population scenarios under TU is comparable to commonly debated decisions regarding time discounting. Additionally, we estimate the avoided mitigation costs implied by plausible reductions in population growth, finding that large near-term savings ($billions annually) occur under TU; savings under AU emerge in the more distant future. These savings are larger than spending shortfalls for human development policies that may lower fertility. Finally, we show that whether lowering population growth entails overall improvements in wellbeing—rather than merely cost savings—again depends on the ethical approach to valuing population. (shrink)

How much should the present generations sacrifice to reduce emissions today, in order to reduce the future harms of climate change? Within climate economics, debate on this question has been focused on so-called “ethical parameters” of social time preference and inequality aversion. We show that optimal climate policy similarly importantly depends on the future of the developing world. In particular, although global poverty is falling and the economic lives of the poor are improving worldwide, leading models of climate economics may (...) be too optimistic about two central predictions: future population growth in poor countries, and future convergence in total factor productivity (TFP). We report results of small modifications to a standard model: under plausible scenarios for high future population growth (especially in sub-Saharan Africa) and for low future TFP convergence, we find that optimal near-term carbon taxes could be substantially larger. (shrink)

Integrated assessment models of climate and the economy provide estimates of the social cost of carbon and inform climate policy. We create a variant of the Regional Integrated model of Climate and the Economy (RICE)—a regionally disaggregated version of the Dynamic Integrated model of Climate and the Economy (DICE)—in which we introduce a more fine-grained representation of economic inequalities within the model’s regions. This allows us to model the common observation that climate change impacts are not evenly distributed within regions (...) and that poorer people are more vulnerable than the rest of the population. Our results suggest that this is important to the social cost of carbon—as significant, potentially, for the optimal carbon price as the debate between Stern and Nordhaus on discounting. (shrink)

The health co-benefits of CO2 mitigation can provide a strong incentive for climate policy through reductions in air pollutant emissions that occur when targeting shared sources. However, reducing air pollutant emissions may also have an important co-harm, as the aerosols they form produce net cooling overall. Nevertheless, aerosol impacts have not been fully incorporated into cost-benefit modeling that estimates how much the world should optimally mitigate. Here we find that when both co-benefits and co-harms are taken fully into account, optimal (...) climate policy results in immediate net benefits globally, overturning previous findings from cost-benefit models that omit these effects. The global health benefits from climate policy could reach trillions of dollars annually, but will importantly depend on the air quality policies that nations adopt independently of climate change. Depending on how society values better health, economically optimal levels of mitigation may be consistent with a target of 2 °C or lower. (shrink)

It is often stated that optimal global climate policy requires global harmonization of marginal abatement costs – i.e., a single carbon price throughout the world. Chichilnisky and Heal (1994) have shown quite generally that this is only the case if distributional issues are ignored, or if lump-sum transfers are made between countries. Else, a policy in which different regions face different carbon prices may be superior to one with a single global carbon price from a welfare point of view. Still, (...) most integrated assessment models (IAMs) assume away distributional issues and report a single optimal carbon price. We calculate utilitarian-optimal carbon prices under zero cross-regional lump-sum transfers in the multi-region IAM NICE. The result is optimal global climate policy with different regional carbon prices in which the poorest regions face initially low prices, while the richest regions face very high prices from the outset. This entails significant welfare gains over the standard single price optima commonly reported, which, as we argue briefly in conclusion, can be improved upon still by allowing international trading in the corresponding emissions allocations. (shrink)

Integrated assessment models (IAMs) of climate and the economy provide estimates of the social cost of carbon and inform climate policy. With the Nested Inequalities Climate Economy model (NICE) (Dennig et al. PNAS 112:15,827–15,832, 2015), which is based on Nordhaus’s Regional Integrated Model of Climate and the Economy (RICE), but also includes inequalities within regions, we investigate the comparative importance of several factors—namely, time preference, inequality aversion, intraregional inequalities in the distribution of both damage and mitigation cost and the damage (...) function. We do so by computing optimal carbon price trajectories that arise from the wide variety of combinations that are possible given the prevailing range of disagreement over each factor. This provides answers to a number of questions, including Thomas Schelling’s conjecture that properly accounting for inequalities could lead the inequality aversion parameter to have an effect opposite to what is suggested by the Ramsey equation. (shrink)

Over the past few decades, we have improved our understanding of the health impacts of climate change.1 Although many public health researchers have contributed to this knowledge, relatively few are aware of how their work may relate to the social cost of carbon. The social cost of carbon is a core economic concept in climate policy and one that can—and should—benefit directly from research produced by the public health community. The concept’s importance was recently highlighted by this past year’s Nobel (...) Prize in Economic Sciences, which was awarded to William Nordhaus in part for his pioneering work developing models to estimate the social cost of carbon. Below we describe this concept, explain how it is calculated, and provide some brief guidance on how health research can improve its estimation. (shrink)