Climate change is a new kind of macroeconomic risk and will impact asset pricing. Risk and uncertainty lie at the heart of climate change analysis. Given that economic agents are averse both to risk and to uncertainty, they may rationally wish to spend more than the optimal total social cost of carbon. To that extent, therefore, a conventional cost-benefit calculation should be amended to allow for the payment of a risk premium over and above the total social cost of carbon. The paper defines the difference between total social cost of carbon and the society＇s willingness to pay as a simple measure of climate change risk premium and calculates the premium.
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