Social Cost Of Carbon And Sensitivity Analysis Based On The Overlapping Generation Model

Climate change issues and economic development need to be of general concern.An important concept in climate change is the social cost of carbon.In order to examine the sensitivity of economic growth characteristics and the social cost of carbon,this paper focuses on the following two aspects.(1)Based on an overlapping generations model,the characteristics of economic growth dynamics and the social cost of carbon are studied.In the construction of the model,in addition to covering capital,labor and non-renewable resources,the production function considers the damage of climate change to economic development and incorporates carbon emissions into the production structure;for climate damage,the paper portrays the irreversible nature of climate change in a programmatic way;in the utility function,the effects of both private consumption and climate damage are mainly considered.On this basis,the intertemporal utility of a household is given,the optimal intertemporal allocation is obtained by solving the optimization problem,a closed solution to the deterministic model is given,and the economic growth dynamics and the social cost of carbon are described.obtaining that the optimal tax rate is concave in consumption when the elasticity of substitution is less than one;When the elasticity of substitution is greater than one,the optimal tax rate is convex in consumption.Therefore,the optimal carbon tax grows at a different rate to the economy.(2)Sensitivity analysis of the social cost of carbon.The stochastic capital dynamics is extended to the model,and the relationship between the social cost of carbon and the key parameters(elasticity of substitution,intergenerational discount rate,climate uncertainty)is portrayed separately using the elasticity formula for solving the sensitivity problem.Then,the parameters related to economic development and climate change are calibrated by combining the historical data and the previous model settings,and the key parameters are simulated and sampled using the Monte Carlo method.On this basis,exploring the relationship between key parameters and the social cost of carbon.The results show that the social cost of carbon is very sensitive to the exact specification of the elasticity of substitution,which requires an analysis of the different elasticities of substitution.The social cost of carbon is also very sensitive to the intergenerational discount rate,especially for small values of the intergenerational discount rate,and therefore the marginal abatement cost needs to be weighed against the damage cost,which has a high weight in the decision if the discount rate is small.For climate uncertainty,if the uncertainty is too large,the stochastic optimization problem cannot be solved.For smaller levels of uncertainty,it has a moderate impact on the social cost of carbon,which increases sharply with further increases in uncertainty as uncertainty approaches the critical level given.