Carbon Prices for the Next Hundred Years

39 Pages Posted: 20 Mar 2014  

Reyer Gerlagh

Tilburg University - Center and Faculty of Economics and Business Administration

Matti Liski

Aalto University - Department of Economics

Date Written: February 25, 2014

Abstract

World income grows fast without verifiable climate-change impacts on the economy. The growth spell can end if climate impacts turn real but this can take decades to learn. We develop a tractable stochastic climate-economy model with a hidden-state impact process to evaluate the contributions of the expanding economy and changing impact beliefs to the social cost of carbon. Taking a dataset of estimates for the social cost as a representation of beliefs, we assess how robust climate policies are to the delays of hard information. The carbon price should rise with income to the next century, even without observed impacts. The carbon price should grow faster than the economy as long as climate warming is not enough for generating impacts that are informative about the true social cost.

Keywords: carbon price, learning, climate change

JEL Classification: H430, H410, D610, D910, Q540, E210

Suggested Citation

Gerlagh, Reyer and Liski, Matti, Carbon Prices for the Next Hundred Years (February 25, 2014). CESifo Working Paper Series No. 4671. Available at SSRN: https://ssrn.com/abstract=2411429

Reyer Gerlagh

Tilburg University - Center and Faculty of Economics and Business Administration ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Matti Liski (Contact Author)

Aalto University - Department of Economics ( email )

PO Box 1210
FI-00101 Helsinki
Finland
+358-9-43138384 (Phone)
+358-9-43138735 (Fax)

HOME PAGE: http://www.hkkk.fi/~liski

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