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Pricing carbon and adjusting capital to fend off climate catastrophes

Abstract:

The optimal reaction to a potential productivity shock as a consequence of climate tipping is to substantially tax carbon in order to curb the risk of tipping, but to adjust capital as well in order to smooth consumption when tipping occurs. We also allow for conventional marginal climate damages and decompose the optimal carbon tax in two catastrophe components and the conventional component. We distinguish constant and increasing marginal hazards. Moreover, the productivity catastrophe is c...

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Publication status:
Published
Peer review status:
Peer reviewed
Version:
Publisher's version

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Publisher copy:
10.1007/s10640-018-0231-2

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Institution:
University of Oxford
Division:
Social Sciences Division
Department:
Economics; OxCarre
Role:
Author
Publisher:
Springer Publisher's website
Journal:
Environmental and Resource Economics Journal website
Publication date:
2018-02-05
Acceptance date:
2018-02-19
DOI:
EISSN:
1573-1502
ISSN:
0924-6460
Pubs id:
pubs:829831
URN:
uri:c9a0eaa4-dacd-4a8b-a905-e8df7281ebc0
UUID:
uuid:c9a0eaa4-dacd-4a8b-a905-e8df7281ebc0
Local pid:
pubs:829831

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