Abstract
We present an economic growth and energy use model incorporating representations of greenhouse gas accumulation, global mean temperature rise, and the damage cost associated with this temperature rise. Under alternative assumptions about the damage cost function, we find optimal time paths of CO2 emissions control and associated optimal carbon taxes. Our work indicates that with plausible assumptions, an optimal carbon tax will rise over time, in contrast to the “hump-shaped” carbon taxes implied by CO2 reduction policies currently being discussed. Our work also suggests that the damage cost function would have to be both high and nonlinear in order to justify the general level of CO2 control and carbon taxes implied by these policies.
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