An Economic Anatomy of Optimal Climate Policy

39 Pages Posted: 21 Jul 2018

See all articles by Juan Moreno-Cruz

Juan Moreno-Cruz

University of Waterloo - School of Environment, Enterprise and Development

Gernot Wagner

New York University (NYU) - Department of Environmental Studies; New York University (NYU) - Robert F. Wagner Graduate School of Public Service

David Keith

Harvard University - Harvard Kennedy School (HKS)

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Date Written: June 01, 2018

Abstract

This paper introduces geoengineering into an optimal control model of climate change economics. Together with mitigation and adaptation, carbon and solar geoengineering span the universe of possible climate policies. Their wildly different characteristics have important implications for climate policy. We show in the context of our model that: (i) the optimal carbon tax equals the marginal cost of carbon geoengineering; (ii) the introduction of either form of geoengineering leads to higher emissions yet lower temperatures; (iii) in a world with above-optimal cumulative emissions, only a complete set of instruments can minimize climate damages.

Keywords: climate change, climate policy, mitigation, adaptation, carbon geoengineering, carbon dioxide removal, solar geoengineering, solar radiation management

JEL Classification: D900, O440, Q480, Q540, Q580

Suggested Citation

Moreno-Cruz, Juan and Wagner, Gernot and Keith, David, An Economic Anatomy of Optimal Climate Policy (June 01, 2018). CESifo Working Paper Series No. 7059, Available at SSRN: https://ssrn.com/abstract=3210557

Juan Moreno-Cruz (Contact Author)

University of Waterloo - School of Environment, Enterprise and Development ( email )

Waterloo, Ontario N2L 3G1
Canada

Gernot Wagner

New York University (NYU) - Department of Environmental Studies ( email )

285 Mercer Street
New York, NY 10003
United States

New York University (NYU) - Robert F. Wagner Graduate School of Public Service ( email )

The Puck Building
295 Lafayette Street, Second Floor
New York, NY 10012
United States

David Keith

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

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