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.
Highlights
Our aim is to present a back-on-the-envelope integrated assessment framework that can be used to derive optimal climate policies in a transparent and intuitive way
This framework allows us to derive welfare-maximising climate policies as simples rules for the optimal carbon price, the rate at which renewable energies are substituted for fossil fuel, the fraction of fossil that is abated by carbon capture and sequestration (CCS), the optimal timing of the transition to the carbon-free era, the maximum cumulative emissions and the maximum warming level, and the amount of fossil fuel locked up forever in the crust of the earth
Regarding the geophysical drivers of climate policy, apart from our benchmark of simple linear carbon and temperature dynamics used by atmospheric physicists (e.g., Joos et al 2013; Allen 2016; Aengenheyster et al 2018) and economists (e.g., Hassler and Krusell 2012; Golosov et al 2014; van den Bijgaart et al 2016; Rezai and van der Ploeg 2016; Gerlagh and Liski 2018), we allow for a model of carbon dynamics with the positive feedback loop that get unleashed as the capacity of the oceans to absorb carbon diminishes (Millar et al 2017)
Summary
Our aim is to present a back-on-the-envelope integrated assessment framework that can be used to derive optimal climate policies in a transparent and intuitive way. A multitude of very large and detailed Integrated Assessment Models (IAMs) of the economy and the climate are able to generate numerical simulations of the optimal global price of carbon, the implied optimal substitution rates of renewable energies for fossil fuel, and the optimal sequestration rates. Such IAMs give careful suggestions for climate policies, the key determinants of these are difficult to understand.
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
