Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/273843 
Year of Publication: 
2023
Series/Report no.: 
Tinbergen Institute Discussion Paper No. TI 2023-032/IV
Publisher: 
Tinbergen Institute, Amsterdam and Rotterdam
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
Subjects: 
stochastic volatility
social cost of carbon
climate damage
Duffie-Epstein preference
JEL: 
G12
G13
Q51
Q54
Document Type: 
Working Paper

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