Template-Type:  ReDIF-Paper 1.0
Series:  Tinbergen Institute Discussion Papers
Creation-Date: 06/15/2023
Number: 23-032/IV
Author-Name: Xu Lin
Author-Workplace-Name: University of Amsterdam
Author-Name: Sweder van Wijnbergen
Author-Workplace-Name: University of Amsterdam
Title: The Social Cost of Carbon under Climate Volatility Risk
Abstract: We calculate the social cost of carbon (SCC) under stochastic climate volatility resulting from uncertainty about future climate risk regimes where weather extremes are
becoming more frequent and intense. Using a stochastic dynamic integrated climate-economy model where representative agents are endowed with Duffie-Epstein recursive
preferences, we find that climate volatility risks substantially increase the SCC both
in the business-as-usual and optimal abatement policy scenario. We also show that
switching to a regime with more intense disasters increases the SCC more than a switch
to a regime with more frequent disasters for equal expected value. Overall we show
that stochastic volatility has a major impact on the SCC.Classification-JEL: G12, G13, Q51, Q54
Keywords: stochastic volatility, social cost of carbon, climate damage, Duffie-Epstein
preference
File-Url: https://papers.tinbergen.nl/23032.pdf
File-Format:  application/pdf
File-Size: 2.091.110 bytes
Handle:  RePEc:tin:wpaper:20230032