Carbon Prices for the Next Hundred Years

30 Pages Posted: 5 Mar 2018

See all articles by Reyer Gerlagh

Reyer Gerlagh

Tilburg University - Tilburg University School of Economics and Management

Matti Liski

Aalto University - Department of Economics

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Date Written: March 2018

Abstract

This article examines the socially optimal pricing of carbon emissions over time when climate‐change impacts are unknown, potentially high‐consequence events. The carbon price tends to increase with income. But learning about impacts, or their absence, decouples the carbon price from income growth. The price should grow faster than the economy if the past warming is not substantial enough for learning the true long‐run social cost. It grows slower than the economy as soon as the warming generates information about events that could have arrived but have not done so. A quantitative assessment shows that the price grows roughly at the rate of the economy for the next 100 years.

Suggested Citation

Gerlagh, Reyer and Liski, Matti, Carbon Prices for the Next Hundred Years (March 2018). The Economic Journal, Vol. 128, Issue 609, pp. 728-757, 2018. Available at SSRN: https://ssrn.com/abstract=3133434 or http://dx.doi.org/10.1111/ecoj.12436

Reyer Gerlagh (Contact Author)

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Matti Liski

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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