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Priority for the worse-off and the social cost of carbon

Abstract

The social cost of carbon (SCC) is a key tool in climate policy. The SCC expresses in monetary terms the social impact of the emission of a ton of CO2 in a given year. The SCC is calculated using a ‘social welfare function’ (SWF): a method for assessing social welfare. The dominant SWF in climate policy is the discounted-utilitarian SWF. Individuals’ well-being numbers (utilities) are summed, and the values for later generations are reduced (‘discounted’). This SWF has been criticized for ignoring the distribution of well-being and including an arbitrary time preference. Here, we use a ‘prioritarian’ SWF, with no time discount, to calculate the SCC. This SWF gives extra weight (‘priority’) to worse-off individuals. Prioritarianism is a well-developed concept in ethics and welfare economics, but has been rarely used in climate scholarship. We find substantial differences between the discounted-utilitarian and non-discounted prioritarian SCCs.

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Figure 1: Prioritarian transformation function.
Figure 2: SCCDUand SCCNP as a function of η, ρ, and γ.
Figure 3: SCCDU and SCCNP as a function of η, ρ, and γ: contour plots.
Figure 4: SCCDU and SCCNP at central parameter values.
Figure 5: The parameters of SCCNP: sensitivity analysis.

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Acknowledgements

This work was partially supported by the National Science Foundation through the Network for Sustainable Climate Risk Management (SCRiM) under NSF cooperative agreement GEO-1240507 as well as the Penn State Center for Climate Risk Management. V.B. gratefully acknowledges funding from the European Research Council under the European Community’s program ‘Ideas’ (ERC-2013-StG/ERC grant agreement no. 336703, project RISICO, ‘Risk and uncertainty in developing and implementing climate change policies’). We thank F. Errickson and K. Ruckert for excellent research assistance and N. Tuana and R. Lempert for valuable inputs.

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All authors contributed equally to developing the analytic framework, interpreting results and drafting the text. D.A. wrote code to calculate SCC values in RICE, and G.G. prepared the figures.

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Correspondence to Matthew Adler.

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The authors declare no competing financial interests.

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Adler, M., Anthoff, D., Bosetti, V. et al. Priority for the worse-off and the social cost of carbon. Nature Clim Change 7, 443–449 (2017). https://doi.org/10.1038/nclimate3298

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