Abstract
Assessments of the benefits of climate change mitigation—and thus of the appropriate stringency of greenhouse gas emissions abatement—depend upon ethical, legal, and political economic considerations. Global climate change mitigation is often represented as a repeated prisoners’ dilemma in which the net benefits of sustained global cooperation exceed the net benefits of uncooperative unilateral action for any given actor. Global cooperation can be motivated either by circumspection—a decision to account for the damages one’s own actions inflict upon others—or by the expectation of reciprocity from others. If the marginal global benefits of abatement are approximately constant in total abatement, the domestically optimal price approaches the global cooperative optimum linearly with increasing circumspection and reciprocity. Approximately constant marginal benefits are expected if climate damages are quadratic in temperature and if the airborne fraction of carbon emissions is constant. If, on the other hand, damages increase with temperature faster than quadratically or carbon sinks weaken significantly with increasing CO2 concentrations, marginal benefits will decline with abatement. In this case, the approach to the global optimum is concave and less than full circumspection and/or reciprocity can lead to optimal domestic abatement close to the global optimum.
Highlights
Regardless of whether it is implemented in the form of an explicit carbon price or more targeted policies and measures, climate change mitigation policy involves trade offs
Reference net present value (NPV) Gross Domestic Product (GDP) and 21st century cumulative emissions are based upon scenario SSP 9 of Eom et al (2012) (Table S1)
The use of a global social cost of carbon (SCC) in domestic benefit-cost analysis (BCA) can be motivated by assumptions of full reciprocity, complete circumspection, or an intermediate combination of the two
Summary
Regardless of whether it is implemented in the form of an explicit carbon price or more targeted policies and measures, climate change mitigation policy involves trade offs. On one side are the uncertain costs of transforming the energy system; on the other, the still more uncertain and “fat-tailed” costs of climate change itself By explicitly balancing these tradeoffs, quantitative benefit-cost analysis (BCA) can inform decisions about the appropriate stringency of mitigation policies, but its application requires an estimate of the economic benefits of abating emissions. The social cost of carbon (SCC) provides a measure of these benefits It is an estimate of the change in expected welfare of a representative agent resulting from a marginal emission of CO2, normalized by the change in expected welfare resulting from a marginal decrease in consumption. If potential “spillover” of climate change damages between regions (for example, due to economic or national security interactions) is not explicitly incorporated into domestic damage estimates, circumspection might be used as a way to account for these effects (Kopp and Mignone 2012; Warren 2011).
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