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Intertemporal Distribution, Sufficiency, and the Social Cost of Carbon

Hänsel, Martin C., Quaas, Martin F.
Ecological economics 2018 v.146 pp. 520-535
carbon, discount rate, social welfare
We explore how the intertemporal distribution of well-being affects the social cost of carbon. In contrast to the literature that studies parameters of a particular social welfare function, such as the discount rate, we shift the focus and directly assume a parametric form for the intertemporal distribution of well-being. This has the advantage of avoiding explicit discounting choices, which has initiated much debate. Specifically, we consider a set of intertemporal distributions that reach a steady-state at a pre-specified level of “sufficient” well-being, or equivalently after a pre-specified “end-of-growth horizon”. We numerically illustrate our results in DICE and find that the social cost of carbon increases over-proportionally with the sufficiency level of well-being. While the social cost of carbon in 2015 is US$7 if the sufficiency level is four-fold the present level, it is US$30 if the sufficiency level is 15-fold, and US$100 if the sufficiency level is 26-fold the present level. This shows in a transparent way how conceptions of intergenerational distributive justice drive the social cost of carbon.