Simple Rules for Climate Policy and Integrated Assessment

van der Ploeg, Frederick and Rezai, Armon (2019) Simple Rules for Climate Policy and Integrated Assessment. Environmental and Resource Economics, 72 (1). pp. 77-108. ISSN 0924-6460

Available under License Creative Commons: Attribution 4.0 International (CC BY 4.0).

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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: Article
Additional Information: Open access funding provided by Austrian Science Fund (FWF). Frederick van der Ploeg: Support from the BP funded OxCarre and from the European Research Council (FP7-IDEAS-ERC Grant No. 269788) is gratefully acknowledged. Armon Rezai: Support from the Schrödinger fellowship of Austrian Science Fund (FWF): J 3633 is gratefully acknowledged.
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
Version of the Document: Published
Depositing User: Gertraud Novotny
Date Deposited: 20 Aug 2018 08:13
Last Modified: 02 Feb 2019 04:36
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