Tuesday, December 3, 2013

The social cost of carbon in one equation

Climate economics is a hugely complex undertaking, especially if you want to get some quantitative answers. Indeed, one has to embed economic and climate models into each other, and the later are not simple particularly once you want to incorporate the impact of some additional pollutants that bring the model outside of historical records. This complexity makes is largely impossible for most of us to attempt at looking at, say, at the effect of our favorite policy intervention.

This need not be so, write Inge van den Bijgaart, Reyer Gerlagh, Luuk Korsten and Matti Liski. Indeed, they find that one can reduce these complex interactions to a single equation and get it 99% right when trying to calculate the social cost of carbon (the monetary equivalent of carbon in the air). While the equation is not particularly simple, it is useful in the sense that one still needs to explicit one's assumptions when using it. And unlike a fundamental equation recently discussed here, the authors detail how it is derived.

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