optimal climate policy
TRANSCRIPT
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Optimal Emission Reduction• The problem• The solution
– What will it cost?– What to do?
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How deep?The ultimate objective of [the United Nations Framework Convention on Climate Change] [...] is to achieve [...] stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system. Such a level should be achieved within a time-frame sufficient to allow ecosystems to adapt naturally, to ensure that food production is not threatened and to enable economic development to proceed in a sustainable manner.
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How deep?• Concentration
1 1
1Stabilization:
1
t t t
t t
M M EM M
EM M E M
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How deep?• Maier-Reimer & Hasselmann
5
,1
5
, , 1 11
1 2 3
54
; 1
1 1/ 2; 1 1/ 17; 1 1/ 74;1 1/ 363; 1
Stabilization: 0
t i ti
i t i i ii t ti
M M
M M E
E
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Optimal Climate Policy• In a static optimum, the marginal costs
should equal the marginal benefits• In a situation like climate change, where
the benefits are a stock and the costs are a flow, the marginal costs should equal the net present value of the marginal benefits
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Optimal Climate Policy• In a static optimum, the marginal costs
should equal the marginal benefitsmax ( ) ( ) ( )
EW E B E C E
0 0W B C B CE E E E E
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Optimal Climate Policy• In a situation like climate change, where
the benefits are a stock and the costs are a flow, the marginal costs should equal the net present value of the marginal benefits
0 1
1
1, ,...
( , ,...) ( )max ( ) ( )t t t t t
tE E t
B E E C EW Er
11( )
t s ts
s t t
B C tr E E
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0
50
100
150
200
250
2005 2025 2045 2065 2085 2105
Car
bon
tax
(200
0 $
per t
on ca
rbon
)
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350
400
450
500
550
600
650
700
750
2005 2025 2045 2065 2085 2105
Atm
osph
eric
con
cent
ratio
n of
car
bon
diox
ide
(ppm
)
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Optimal Emission Control• If the world were ruled by a benevolent
dictator, what would she do?• A little emission reduction in the beginning,
more later, but not enough to stabilise concentrations
• The first part is robust, the second part is very sensitive to assumptions
• The last part is robust, unless there is a cheap alternative to fossil fuels
• If we consider many countries, optimal emission reduction goes down!
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Gain
Emissions
Marginal private gainsf rom emissions
Marginal social lossesf rom emissions
Marginal net social gainsf rom emissions
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Optimal Emission Control• If the world were ruled by a benevolent
dictator, what would she do?• A little emission reduction in the beginning,
more later, but not enough to stabilise concentrations
• The first part is robust, the second part is very sensitive to assumptions
• The last part is robust, unless there is a cheap alternative to fossil fuels
• If we consider many countries, optimal emission reduction goes down!