Closed-Form Integrated Assessment and Uncertainty
CESifo, Munich, 2015
CESifo Working Paper No. 5464
The paper derives the optimal carbon tax in closed-form from an integrated assessment of climate change. The formula shows how carbon, temperature, and economic dynamics quantify the optimal mitigation effort. The model’s descriptive power is comparable to numeric models used in policy advising. Uncertainty surrounding climate change remains large, and the paper derives closed-form expressions of welfare loss from shocks and epistemological uncertainty. These expressions interact (intrinsic) risk attitude, distributional moments, and the climatic shadow values, and exhibit different sensitivities to time preference. Welfare gains from reducing uncertainty about temperature feedbacks are much higher than the gains from better measurements of carbon flows.
Energy and Climate Economics
Resources and Environment