h i g h l i g h t s • We emphasize the market failure in the market for carbon emissions for economy-wide CBA. • Treating the SCC as independent of reference path is vulnerable to the methodological error. • We gage the effects of uncertainty and ambiguity on the social cost of carbon. • We review empirical estimates of the SCC. • We critically discuss recent US policy initiatives placing the SCC at 77/tC. a r t i c l e i n f o b s t r a c t Determining the social cost of carbon emissions (SCC) is a crucial step in the economic analysis of climate change policy as the US government's recent decision to use a range of estimates of the SCC centered at 77/tC (or, equivalently, $21/tCO 2 ) in cost-benefit analyses of proposed emission-control legislation underlines. This note reviews the welfare economics theory fundamental to the estimation of the SCC in both static and intertemporal contexts, examining the effects of assumptions about the typical agent's pure rate of time preference and elasticity of marginal felicity of consumption, production and mitigation technology, and the magnitude of climate-change damage on estimates of the SCC. We highlight three key conclusions: (i) an estimate of the SCC is conditional on a specific policy scenario, the details of which must be made explicit for the estimate to be meaningful; (ii) the social discount rate relevant to intertemporal allocation decisions also depends on the policy scenario; and (iii) the SCC is uniquely defined only for policy scenarios that lead to an efficient growth path because marginal costs and benefits of emission-mitigation diverge on inefficient growth paths. We illustrate these analytical conclusions with simulations of a growth model calibrated to the world economy
