Gernot Wagner

“Declining CO2 price paths”

This widely read working paper, since published in PNAS, was co-authored by Gernot Wagner. The analysis is the culmination of a multi-year effort of building a climate-economy model based on insights from financial and risk economics. It treats carbon in the atmosphere like an asset, albeit one with negative payoffs. The paper is joint with Columbia’s Kent Daniel and with Bob Litterman, Goldman Sachs’s former top risk manager. It builds a climate-economy model, cali-brates risk behavior from a century’s worth of financial data using Ep-stein-Zin preferences, and applies these insights to pricing climate risks in what the researchers call the “EZ-Climate” model. Their re-sults depart from standard climate-economy models in three main ways. First, increased risk aversion increases the optimal carbon price – implying that in the battle between climate risk and discounting, risk wins. Second, their optimal carbon price declines over time: Today’s inherent uncertainties win out over higher costs of transition. Third, they found enormous costs of delay, rising with the square (!) of time.

Mr. Wagner’s research agenda while visiting CESifo consist of two re-search projects: 1) with Christine Merk/IWF on geoengineering & moral hazard, focused on a large-scale social media experiment; 2) with Adam Bauer and Cristi Proistosescu, updating the EZ Climate model with a state-of-the-art climate emulator and reflecting the cli-mate damage and economic cost estimates of the latest IPCC report.

Gernot Wagner is a climate economist and senior lecturer at Columbia Business School. Before that he was a clinical associate professor at New York University, Research Associate and Lecturer at Harvard Uni-versity, and founding Executive Director of Harvard’s Solar Geoengi-neering Research Program. He holds a PhD in Political Economy and Government from Harvard University, an MA in Political Economy and Government from Stanford University, and an MA in Economics from Harvard University. He has published in leading journals and has au-thored five books, most recently Geoengineering: The Gamble (Polity Press, 2021).