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Simple rules for climate policy and integrated assessment

van der Ploeg, Frederick and Rezai, Armon (2018) Simple rules for climate policy and integrated assessment. Ecological Economic Papers, 19. WU Vienna University of Economics and Business, Vienna.

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Abstract

A simple integrated assessment framework that gives rules for the optimal carbon price, transition to the carbon-free era and stranded carbon assets is presented, which highlights the ethical, economic, geophysical and political drivers of optimal climate policy. For the ethics we discuss the role of intergenerational inequality aversion and the discount rate, where we show the importance of lower discount rates for appraisal of longer run benefit and of policy makers using lower discount rates than private agents. The economics depends on the costs and rates of technical progress in production of fossil fuel, its substitute renewable energies and sequestration. The geophysics depends on the permanent and transient components of atmospheric carbon and the relatively fast temperature response, and we allow for positive feedbacks. The politics stems from international free-rider problems in absence of a global climate deal. We show how results change if different assumptions are made about each of the drivers of climate policy. Our main objective is to offer an easy back-on-the-envelope analysis, which can be used for teaching and communication with policy makers.

Item Type: Paper
Keywords: simple rules, climate policy, ethics, economics, geophysics, politics, discounting with declining discount rates, positive feedback, free riding
Classification Codes: JEL D81, H20, Q31, Q38
Divisions: Departments > Sozioökonomie > Ecological Economics
Depositing User: Daniel Schmelz
Date Deposited: 27 Mar 2019 14:43
Last Modified: 27 Mar 2019 14:43
URI: http://epub.wu.ac.at/id/eprint/6890

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