The Social Cost of Carbon, Risk, Distribution, Market Failures: An Alternative Approach

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Nicholas Stern & Joseph E. Stiglitz

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WORKING PAPER 28472

DOI 10.3386/w28472

ISSUE DATE February 2021

Designing policy for climate change requires analyses that integrate the interrelationship between the economy and environment, including the immense risks and impacts on distribution across and within generations; the many failures, limitations, or absences of key markets; and the limitations on government, both in offsetting these failures and distributional impacts. Much of the standard economic modeling, including Integrated Assessment Models, does not embody key aspects of these essentials. We identify fundamental flaws in both the descriptive and normative methodologies commonly used to assess climate policy, showing systematic biases, with costs of climate action overestimated and benefits underestimated. We provide an alternative methodology by which the social cost of carbon may be calculated, one which embraces the essential elements we have identified.    Download a PDF

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