COMMON CLIMATE ACTIONS VERSUS DIFFERENTIATED CARBON PRICING: THE SOCIAL COST OF CARBON (SCC) FORMATION BASED ON THE LINDAHL EQUILIBRIUM

Calculating the proper social cost of carbon (SCC) is essential for effective climate policy. This paper argues for differentiated regional SCCs and a global SCC indicator based on the Lindahl equilibrium by treating climate change as an externality. The regional Lindahl SCC represents the regional “personalized prices” or “willing-to-pay” cost-sharing in global GHG mitigation efforts. It also acts as a consensus tool for international cooperation on carbon emissions. To demonstrate the feasibility and advantages of the Lindahl SCC, it is calculated using the RICE2020 model and compared with the regional SCC based on a utilitarian (equal-weight) social optimum. Numerical simulations support the findings. Finally, the policy implications of the Lindahl SCC are discussed.