Simple Rules for Climate Policy and Integrated Assessment

44 Pages Posted: 31 Oct 2018

See all articles by Rick van der Ploeg

Rick van der Ploeg

University of Oxford

Armon Rezai

Vienna University of Economics and Business

Date Written: 2018

Abstract

A simple integrated assessment framework that gives rules for the optimal carbon price, transition to the carbon-free era and stranded carbon assets is presented, which highlights the ethical, economic, geophysical and political drivers of optimal climate policy. For the ethics we discuss the role of intergenerational inequality aversion and the discount rate, where we show the importance of lower discount rates for appraisal of longer run benefit and of policy makers using lower discount rates than private agents. The economics depends on the costs and rates of technical progress in production of fossil fuel, its substitute renewable energies and sequestration. The geophysics depends on the permanent and transient components of atmospheric carbon and the relatively fast temperature response, and we allow for positive feedbacks. The politics stems from international free-rider problems in absence of a global climate deal. We show how results change if different assumptions are made about each of the drivers of climate policy. Our main objective is to offer an easy back-on-the-envelope analysis, which can be used for teaching and communication with policy makers.

Keywords: simple rules, climate policy, ethics, economics, geophysics, politics, discounting with declining discount rates, positive feedback, free riding

JEL Classification: D810, H200, Q310, Q380

Suggested Citation

van der Ploeg, Frederick and Rezai, Armon, Simple Rules for Climate Policy and Integrated Assessment (2018). CESifo Working Paper No. 7207. Available at SSRN: https://ssrn.com/abstract=3275380

Frederick Van der Ploeg (Contact Author)

University of Oxford ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom

Armon Rezai

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

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