FURTHER COMMENT ON "A RAPID ASSESSMENT MODEL FOR UNDERSTANDING THE SOCIAL COST OF CARBON"

In this reply to the comment by Gerlagh, we confirm an error in our estimate of the certainty-equivalent social cost of carbon (SCC) reported in Newbold et al. (2013), and we discuss the underlying conceptual difficulties that arise in conducting a social welfare analysis when preferences are heterogeneous or uncertain. The certainty-equivalent SCC depends crucially on the reference level of per capita consumption used to normalize marginal utility across possible preference parameters, and our estimate of the certainty-equivalent SCC was driven largely by an arbitrary choice of measurement units. All other results from our rapid assessment model are based on the deterministic SCC or its simulated probability distribution, which does not depend on the reference level of per capita consumption.