Closed-Form Integrated Assessment and Uncertainty

55 Pages Posted: 14 Aug 2015

See all articles by Christian P. Traeger

Christian P. Traeger

University of Oslo - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute; University of Oslo - Ragnar Frisch Centre for Economic Research; University of California, Berkeley - Department of Agricultural & Resource Economics

Multiple version iconThere are 2 versions of this paper

Date Written: August 13, 2015

Abstract

A revised version of this paper can be found at: http://ssrn.com/abstract=2667972

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. The closed-form expressions of welfare loss from shocks and epistemological uncertainty identify the interaction of (intertemporal) risk attitude, distributional moments, and the climatic shadow values. Welfare gains from reducing uncertainty about temperature feedbacks are much higher than the gains from better measurements of carbon flows.

Keywords: climate change, integrated assessment, uncertainty, learning, risk aversion, recursive utility, social cost of carbon, carbon tax

JEL Classification: Q540, H430, E130, D810, D900, D610

Suggested Citation

Traeger, Christian P., Closed-Form Integrated Assessment and Uncertainty (August 13, 2015). CESifo Working Paper Series No. 5464. Available at SSRN: https://ssrn.com/abstract=2643293

Christian P. Traeger (Contact Author)

University of Oslo - Department of Economics ( email )

Norway

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 81679
Germany

University of Oslo - Ragnar Frisch Centre for Economic Research ( email )

Gaustadalleen 21
N-0317 Oslo
Norway

University of California, Berkeley - Department of Agricultural & Resource Economics ( email )

Berkeley, CA 94720
United States

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