Analytic Integrated Assessment and Uncertainty
55 Pages Posted: 2 Oct 2015
Date Written: September 30, 2015
This paper is a revised version of: http://ssrn.com/abstract=2643293.
A revised version of this paper can be found at: http://ssrn.com/abstract=3307622.
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 they 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.
Keywords: climate change, integrated assessment, uncertainty, learning, risk aversion, recursive utility
JEL Classification: Q54, H43, E13, D81, D90, D61
Suggested Citation: Suggested Citation