Intergenerational inequality aversion, growth, and the role of damages: Occam’s rule for the global carbon tax

Journal of the Association of Environmental and Resource Economists

Volumn 3, Issue 2, 2016, Pages 493-522

  Rezai, Armon ^a,b   Van der Ploeg, Frederick ^c,d,e  

^a VIENNA UNIVERSITY OF ECONOMICS AND BUSINESS   (Austria)

^b INTERNATIONAL INSTITUTE FOR APPLIED SYSTEMS ANALYSIS   (Austria)

^c UNIVERSITY OF OXFORD   (United Kingdom)

^d ST PETERSBURG STATE UNIVERSITY   (Russian Federation)

^e VU UNIVERSITY AMSTERDAM   (Netherlands)

Author keywords

Alternative climate damage specifications; Growth; Intergenerational inequality aversion; Optimal carbon tax; Simple rule; Stranded assets; Transition times; Welfare losses

Indexed keywords

EID: 85014393540     PISSN: 23335955     EISSN: 23335963     Source Type: Journal    
DOI: 10.1086/686294     Document Type: Article

References (34)

1. Ackerman, F., and E. Stanton. 2012. Climate risks and carbon prices: Revising the social cost of carbon. Economics: The Open-Access, Open-Assessment E-Journal 6:2012–10.
2. 2 in geologic time. Journal of Geophysical Research 110: C09S05.
3. Archer, David, Michael Eby, Victor Brovkin, Andy Ridgwell, Long Cao, Uwe Mikolajewicz, Ken Caldeira, Katsumi Matsumoto, Guy Munhoven, Alvaro Montenegro, and Kathy Tokos. 2009. Atmospheric lifetime of fossil fuel carbon dioxide. Annual Review of Earth and Planetary Sciences 37:117–34.
4. Bansal, Ravi, and Marcelo Ochoa. 2011. Welfare costs of long term temperature shifts. NBER Working Paper 17574, National Bureau of Economic Research, Cambridge, MA.
5. Bansal, Ravi, and Marcelo Ochoa. 2012. Temperature, aggregate risk, and expected returns. NBER Working Paper 17575, National Bureau of Economic Research, Cambridge, MA.
6. Barro, Robert J. 2015. Convergence and modernisation. Economic Journal s125: 585, 911–42.
7. Cai, Yongyang, Kenneth L. Judd, and Thomas S. Lontzek. 2012. Open science is necessary. Nature Climate Change 2:299.
8. Cai, Yongyang, Kenneth L. Judd, Timothy M. Lenton, Thomas S. Lontzek, and Daiju Narita. 2015. Risk to ecosystem services could significantly affect the cost-benefit assessments of climate change policies. Proceedings of the National Academy of Sciences (April, 14). 112 (15): 4606–11.
9. Dell, Melissa, Benjamin F. Jones, and Benjamin A. Olken. 2012. Temperature shocks and economic growth: Evidence from the last half century. American Economic Journal: Macroeconomics 4:66–95.
10. Dietz, Simon, and Nicholas H. Stern. 2015. Endogenous growth, convexity of damages and climate risk: How Nordhaus’ framework supports deep cuts in carbon emissions. Economic Journal 125 (583): 574–602.
11. Epstein, Larry G., and Stanley E. Zin. 1989. Substitution, risk aversion, and the temporal behavior of consumption and asset returns. Econometrica 57 (4): 937–69.
12. Gerlagh, Reyer, and Matti Liski. 2012. Carbon prices for the next thousand years. Working Paper 3855, CESifo, Munich.
13. Gollier, Christian. 2013 Pricing the planet’s future: The economics of discounting in an uncertain world. Princeton, NJ: Princeton University Press.
14. Golosov, Michael, John Hassler, Per Krusell, and Aleh Tsyvinski. 2014. Optimal taxes on fossil fuel in general equilibrium. Econometrica 82 (1): 41–88.
15. Hassler, J., P. Krusell, and C. Olovsson. 2012. Energy-saving technical change. NBER Working paper 18456, National Bureau of Economic Research, Cambridge, MA.
16. IEA. 2008. World Energy Outlook 2008. http://www.iea.org/textbase/nppdf/free/2008/weo2008.pdf.
17. IPCC (Intergovernmental Panel on Climate Chanage). 2014. Climate change 2014, AR5 synthesis report. http://www.ipcc.ch/pdf/assessment-report/ar5/syr/SYR_AR5_SPM.pdf (accessed November 14, 2014).
18. Jensen, Svenn, and Christian P. Traeger. 2014. Optimal climate change mitigation under long-term growth uncertainty: Stochastic integrated assessment and analytic findings. European Economic Review 69 (C): 104–25.
19. Kocherlakota, Narayana. 1996. Implications of efficient risk sharing without commitment. Review of Economic Studies 63 (4): 595–609.
20. Majda, Andrew, Ilya Timofeyev, and Eric van den Eijnden. 2001. A mathematical framework for stochastic climate models. Communications on Pure and Applied Mathematics 54:891–974.
21. Moore, Frances C., and Delavane B. Diaz. 2015. Temperature impacts on economic growth warrant stringent mitigation policy. Nature Climate Change 5:127–31.
22. Nordhaus, William. 1991. To slow or not to slow: The economics of the greenhouse effect. Economic Journal 101 (407): 920–37.
23. Nordhaus, William. 2008. A question of balance: Weighing the options on global warming policies. New Haven, CT: Yale University Press.
24. Nordhaus, William. 2014. Estimates of the social cost of carbon: Concepts and results from the DICE-2013R model and alternative approaches. Journal of the Association of Environmental and Resource Economists 1:273–312.
25. Pindyck, Robert S. 2013. Climate change policy: What do the models tell us? Journal of Economic Literature 51:860–72.
26. Rezai, Armon, and Frederick Van der Ploeg. 2015. Robustness of a simple rule for the social cost of carbon. Economics Letters 132:48–55.
27. Rezai, Armon, Frederick Van der Ploeg, and Cees Withagen. 2014. Economic growth and the social cost of carbon: Additive versus multiplicative damages. Research Paper 93, OxCarre, University of Oxford.
28. Stern, Nicholas H. 2007. The economics of climate change: The Stern Review. Cambridge: Cambridge University Press.
29. Stern, Nicholas H. 2013. The structure of economic modeling of the potential impacts of climate change: Grafting gross underestimation of risk onto already narrow science models. Journal of Economic Literature 51 (3): 838–59.
30. Tol, Richard. 2002a. Estimates of the damage costs of climate change, part I: Benchmark estimates. Environmental and Resource Economics 21:47–73.
31. Tol, Richard. 2002b. Estimates of the damage costs of climate change, part II: Dynamic estimates. Environmental and Resource Economics 21:135–60.
32. Tol, Richards. 2015. Economic impacts of climate change. Working Paper Series no. 75–2015, University of Sussex, Department of Economics.
33. van den Bijgaart, Inge, Reyer Gerlagh, Luuk Korsten, and Matti Liski. 2016. A simple formula for the social cost of carbon. Journal of Environmental Economics and Management 77:75–94.
34. Weitzman, Martin L. 2010. Risk-adjusted gamma discounting. Journal of Environmental Economics and Management 60:1–13.