Environmental Valuation & Cost-Benefit News
Discount rates, equity weights and the social cost of carbon
03/18/08
02:42:35 pm, by damageva 
, 167 words, 182 views 
Categories: Climate Change GHG Carbon CO2, U.K., Academic Study/Journal Article, Computer Software/Database, Contamination Cost, Environmental Economics / Ecological Economics, Costs and Benefits
Discount rates, equity weights and the social cost of carbon
Abstract: Equity weighting has been proposed as a way of allowing welfare equivalents to be included in the social cost of carbon since a dollar to a poor person is worth more than a dollar to a rich one. Here we use the PAGE2002 integrated assessment model to show that the social cost of carbon is higher without equity weights (an elasticity of marginal utility with respect to income of 0) than with them.
This might seem counter-intuitive, but it comes about because of the logical link between equity weights and discount rates; as the elasticity goes from 0 to − 0.5 to − 1.0, the social rate of time preference rises, and the drop in present values that results far outweighs the small increase in impacts that equity weights bring.
Keywords: Climate change; Integrated assessment; Equity weights; Social cost of carbon
by Chris Hope; Judge Business School, University of Cambridge, United Kingdom
Energy Economics via Elsevier Science Direct www.ScienceDirect.com
Volume 30, Issue 3; May, 2008; Pages 1011-1019
http://dx.doi.org/10.1016/j.eneco.2006.11.006
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