Conceptual winsorizing: An application to the social cost of carbon

TL;DR

This paper introduces conceptual winsorizing, a method to remove outliers in social cost of carbon estimates by applying economic constraints, improving the robustness of these estimates over time.

Contribution

It proposes a novel conceptual winsorizing approach based on economic principles to address outliers in social cost of carbon estimates.

Findings

Successfully removes high outliers from estimates

Slackens as economies decarbonize over time

Faster reduction with climate policy

Abstract

There are many published estimates of the social cost of carbon. Some are clear outliers, the result of poorly constrained models. Percentile winsorizing is an option, but I here propose conceptual winsorizing: The social cost of carbon is either a willingness to pay, which cannot exceed the ability to pay, or a proposed carbon tax, which cannot raise more revenue than all other taxes combined. Conceptual winsorizing successfully removes high outliers. It slackens as economies decarbonize, slowly without climate policy, faster with.