Relative Prices and Climate Policy: How the Scarcity of Nonmarket Goods Drives Policy Evaluation

Climate change not only impacts production and market consumption but also the relative scarcity of nonmarket goods, such as environmental amenities. We study fundamental drivers resulting price changes, their potential magnitude, implications for climate policy in Nordhaus’s Dynamic Integrated Climate-Economy (DICE) model, thereby addressing one its key criticisms. propose plausible ranges these prices changes based on best available evidence. Our central calibration reveals that accounting is equivalent to decreasing pure time preference by 0.6 percentage points leads a more than 50 percent higher social cost carbon. (JEL D61, H43, Q51, Q54, Q58)