The social cost of carbon with intragenerational inequality and economic uncertainty

An analytical formula is presented for the Social Cost of Carbon (SCC) taking account of intragenerational income inequality, in addition to intergenerational income inequality, macro-economic uncertainty and rare disasters to economic growth. The social discount rate is adjusted for intra- and intergenerational inequality aversion and risk aversion. If growth reduces intragenerational inequality, the SCC is lower than with inequality-neutral growth, especially if intra- and intergenerational inequality aversion are high. Calibrated to the observed interest rate and risk premium, the SCC in 2020 is $125/tCO2 without considering intragenerational inequality, $81/tCO2 if intragenerational inequality decreases over time, as a continuation of historical trends suggests (based on Shared Socioeconomic Pathway (SSP) 2), and $213/tCO2 if inequality increases (SSP4). Intragenerational inequality has a similar order of effect on the SCC as accounting for rare macroeconomic disasters.