On the social cost of carbon and discounting in the DICE model

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Braun, Philipp ; Faulwasser, Timm ; Grüne, Lars ; Kellett, Christopher M. ; Semmler, Willi ; Weller, Steven R.:
On the social cost of carbon and discounting in the DICE model.
In: AIMS Environmental Science. Bd. 11 (2024) Heft 3 . - S. 471-495.
ISSN 2372-0352
DOI: https://doi.org/10.3934/environsci.2024024

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Abstract

The social cost of carbon (SCC) has emerged as one of the relevant measures in integrated assessment models in climate economy, to quantify costs related to global warming and climate change. While the SCC is used in different models including DICE (Dynamic Integrated model of Climate and Economy), PAGE (Policy Analysis of the Greenhouse Effect) and FUND (Climate Framework for Uncertainty, Negotiation, and Distribution), its exact definition and computation depends on the reference and frequently lacks consistency within research streams focusing on a single or on different models. In this paper, we investigate three different methods for the computation of the SCC using the integrated assessment model DICE. While the first two methods are commonly known and used, the novel formula derived for the third method allows a direct analysis of the impact of the discount factor in the calculation of the SCC. We provide a detailed proof for the correctness of the third method and validate all three methods by numerical experiments.