Uncertainty, Irreversibility, Precaution and the Social Cost of Carbon

TitleUncertainty, Irreversibility, Precaution and the Social Cost of Carbon
Publication TypeTyndall Working Paper
SeriesTyndall Centre Working Papers
Secondary TitleTyndall Centre Working Paper 37
AuthorsIngham, A., and A. Ulph
Year of Publication2003
Abstract

In this paper we explore issues concerning the considerable uncertainty that surrounds many of the elements needed for a calculation of the social cost of carbon.

Section 2 reviews how uncertainty and risk have been incorporated into the calculation of the social cost of carbon, and the difference between the social cost of carbon if explicit account is taken of uncertainties as opposed to ignoring such uncertainties.

Section 3 turns to the main issues of uncertainty, irreversibility, learning and the precautionary principle. We show that there are fundamental ambiguities in how we should expect these would affect the social cost of carbon, and these are reflected in the empirical results obtained so far, though we also argue that the particular models used have perhaps understated what should be the impact on the social cost of carbon.

Section 4 reviews the attempts that have been made to assess the implications of uncertainty, irreversibility, learning and precaution in the context of empirical models of climate change. These studies suggest that the prospect of getting better information (earlier resolution of uncertainty) should lead to a reduction in current abatement levels, although these effects are small.

The issue of catastrophic effects is taken up in section 5. The outcome of what happens when there is a risk of a catastrophe and when there is not depends substantially on the model used and how it might be assessed. The issue of whether conventional cost-benefit analysis, in particular the use of expected utility maximisation, is appropriate for assessing uncertainties about climate change is addressed in various sections of the paper.

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