Pricing Climate Change As a Mortal Threat

40 Pages Posted: 9 Apr 2021 Last revised: 12 Jun 2021

See all articles by Marc H. Vatter

Marc H. Vatter

The Economic Utility Group; Rivier University Department of Business and Security Studies

Date Written: April 7, 2021

Abstract

Mitigation of global warming and aggregate consumption are chosen to maximize the product of expected lifetime and population. Constant relative risk aversion (CRRA) utility is parameterized using a panel of annual NASA and World Bank data covering 220 countries from 1990 to 2018. Optimal CO2 taxes are proportional to consumption per capita and, therefore, vary substantially from poor to rich countries. Assuming equilibrium climate sensitivity of 2.5°, base case worldwide social costs start at $10/tCO2 in 2020 and rise to $125/tCO2 in 2100 in a “2° world”, and to $162/tCO2 in 2100 in a “3° world”. The latter rises to $291/tCO2 under high risk aversion and falls to $136/tCO2 under low risk aversion, all in 2020USD.

Keywords: climate, CO2, tax, mortal

JEL Classification: Q54, J17

Suggested Citation

Vatter, Marc H., Pricing Climate Change As a Mortal Threat (April 7, 2021). USAEE Working Paper No. 21-491, Available at SSRN: https://ssrn.com/abstract=3821603 or http://dx.doi.org/10.2139/ssrn.3821603

Marc H. Vatter (Contact Author)

The Economic Utility Group ( email )

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HOME PAGE: http://appliedecon.net

Rivier University Department of Business and Security Studies ( email )

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United States
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