The social cost of carbon with intragenerational inequality and economic uncertainty
10 January 2023
5.3 The social cost of carbon under the EDE approach In general, the SCC can be written using a definition similar in structure to the SDR in equation (3) except where the numerator reflects the discounted present value of future damages measured in utility and the denominator is the marginal contribution to welfare of initial global consumption (to ensure that the SCC is measured in units of cons. [...] The EDE-based expression for the SCC yields a unique value of the social cost of carbon and in the absence of intergenerational inequality aversion (η = 0) collapses to the standard expression for the SCC.8 6 SCC with intra- and intergenerational inequality and economic uncertainty The EDE approach stems from an intuitive social welfare function (see equation (5)) and provides a simple and natural. [...] 8.2 The climate beta and drivers of the SCC Table 2 also report the effects of the climate beta on the SDR and the SCC. [...] Lower values of the climate beta curbs the effects of the macro and the disaster 25 risk premium on the SDR and thus the SCC smaller. [...] There are three effects at play here of a lower ω: (i) typically, the affluence effect and the risk corrections in the discount rate increase which increase the discount rate and lower the SCC; (ii) if h < 0, a higher ω increases the discount rate and curbs the SCC but if h > 0 the effects are reversed; and (iii) a lower associated value of δ reduces the discount rate and increases the SCC.