1932

Abstract

We construct an integrated assessment model with multiple energy sources—two fossil fuels and green energy—and use it to evaluate ranges of plausible estimates for the climate sensitivity, as well as for the sensitivity of the economy to climate change. Rather than focusing explicitly on uncertainty, we look at extreme scenarios defined by the upper and lower limits given in available studies in the literature. We compare optimal policy with laissez faire, and we point out the possible policy errors that could arise. By far the largest policy error arises when the climate policy is overly passive; overly zealous climate policy (i.e., a high carbon tax applied when climate change and its negative impacts on the economy are very limited) does not hurt the economy much as there is considerable substitutability between fossil and nonfossil energy sources.

Loading

Article metrics loading...

/content/journals/10.1146/annurev-economics-080217-053229
2018-08-02
2024-06-16
Loading full text...

Full text loading...

/deliver/fulltext/economics/10/1/annurev-economics-080217-053229.html?itemId=/content/journals/10.1146/annurev-economics-080217-053229&mimeType=html&fmt=ahah

Literature Cited

  1. Arrhenius S 1896. On the influence of carbonic acid in the air upon the temperature of the ground. Philos. Mag. J. Sci. 41:237–76
    [Google Scholar]
  2. [Google Scholar]
  3. Cai Y, Judd KL, Lontzek TS 2013. The social cost of stochastic and irreversible climate change NBER Work. Pap 18704
    [Google Scholar]
  4. Gollier C 2013. Pricing the Planet's Future: The Economics of Discounting in an Uncertain World Princeton, NJ: Princeton Univ. Press
    [Google Scholar]
  5. Golosov M, Hassler J, Krusell P, Tsyvinski A 2014. Optimal taxes on fossil fuel in general equilibrium. Econometrica 82:41–88
    [Google Scholar]
  6. Hart R, Spiro D 2011. The elephant in Hotelling's room. Energy Policy 39:7834–38
    [Google Scholar]
  7. Hassler J, Krusell P, Olovsson C 2017.a Directed technical change as a response to natural-resource scarcity Work. Pap., Inst. Int. Econ. Stud., Stockholm Univ Stockholm:
    [Google Scholar]
  8. Hassler J, Krusell P, Olovsson C, Reiter M 2017.b Integrated assessment in a multi-region world with multiple energy sources and endogenous technical change Work. Pap., Inst. Int. Econ. Stud., Stockholm Univ Stockholm:
    [Google Scholar]
  9. IPCC (Int. Panel Clim. Change). 2013. Climate Change 2013: The Physical Science Basis Cambridge, UK: Cambridge Univ. Press
    [Google Scholar]
  10. Iverson T, Karp L 2017. Carbon taxes and commitment with non-constant time preference Work. Pap., Colo. State Univ., Fort Collins, CO
    [Google Scholar]
  11. Jensen S, Traeger CP 2016. Optimal climate change mitigation under long-term growth uncertainty: stochastic integrated assessment and analytic findings. Eur. Econ. Rev. 69:104–25
    [Google Scholar]
  12. Lemoine DM 2010. Climate sensitivity distributions dependence on the possibility that models share biases. J. Clim. 23:4395–415
    [Google Scholar]
  13. Nordhaus W, Boyer J 2000. Warming the World: Economic Modeling of Global Warming Cambridge, MA: MIT Press
    [Google Scholar]
  14. Nordhaus W, Moffat A 2017. A survey of global impacts of climate change: replications, survey methods and a statistical analysis NBER Work. Pap 23646
    [Google Scholar]
  15. Rogner H 1997. An assessment of world hydrocarbon resources. Annu. Rev. Energy Environ. 22:217–62
    [Google Scholar]
  16. Stern DI 2012. Interfuel substitution: a meta-analysis. J. Econ. Surv. 26:307–31
    [Google Scholar]
  17. Stern N 2007. The Economics of Climate Change: The Stern Review Cambridge, UK: Cambridge Univ. Press
    [Google Scholar]
  18. Weitzman ML 2011. Fat-tailed uncertainty in the economics of catastrophic climate change. Rev. Environ. Econ. Policy 5:275–92
    [Google Scholar]
/content/journals/10.1146/annurev-economics-080217-053229
Loading
/content/journals/10.1146/annurev-economics-080217-053229
Loading

Data & Media loading...

  • Article Type: Review Article
This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error