IDEAS home Printed from https://ideas.repec.org/a/spr/climat/v147y2018i1d10.1007_s10584-017-2132-8.html
   My bibliography  Save this article

The safe carbon budget

Author

Listed:
  • Frederick Ploeg

    (University of Oxford
    VU University Amsterdam
    St. Petersburg State University)

Abstract

Cumulative emissions drive peak global warming and determine the carbon budget needed to keep temperature below 2 or 1.5 °C. This safe carbon budget is low if uncertainty about the transient climate response is high and risk tolerance (willingness to accept risk of overshooting the temperature target) is low. Together with energy costs, this budget determines the optimal carbon price and how quickly fossil fuel is abated and replaced by renewable energy. This price is the sum of the present discounted value of all future losses in aggregate production due to emitting one ton of carbon today plus the cost of peak warming that rises over time to reflect the increasing scarcity of carbon as temperature approaches its upper limit. If policy makers ignore production losses, the carbon price rises more rapidly. If they ignore the peak temperature constraint, the carbon price rises less rapidly. The alternative of adjusting damages upwards to factor in the peak warming constraint leads initially to a higher carbon price which rises less rapidly.

Suggested Citation

  • Frederick Ploeg, 2018. "The safe carbon budget," Climatic Change, Springer, vol. 147(1), pages 47-59, March.
    • Handle: RePEc:spr:climat:v:147:y:2018:i:1:d:10.1007_s10584-017-2132-8
    DOI: 10.1007/s10584-017-2132-8
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10584-017-2132-8
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10584-017-2132-8?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Moreno-Cruz, Juan B. & Smulders, Sjak, 2017. "Revisiting the economics of climate change: the role of geoengineering," Research in Economics, Elsevier, vol. 71(2), pages 212-224.
    2. Nordhaus, William D, 1991. "To Slow or Not to Slow: The Economics of the Greenhouse Effect," Economic Journal, Royal Economic Society, vol. 101(407), pages 920-937, July.
    3. Bauer, Nico & Bosetti, Valentina & Hamdi-Cherif, Meriem & Kitous, Alban & McCollum, David & Méjean, Aurélie & Rao, Shilpa & Turton, Hal & Paroussos, Leonidas & Ashina, Shuichi & Calvin, Katherine & Wa, 2015. "CO2 emission mitigation and fossil fuel markets: Dynamic and international aspects of climate policies," Technological Forecasting and Social Change, Elsevier, vol. 90(PA), pages 243-256.
    4. Armon Rezai & Frederick Van der Ploeg, 2016. "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, University of Chicago Press, vol. 3(2), pages 493-522.
    5. Derek Lemoine & Christian P. Traeger, 2016. "Economics of tipping the climate dominoes," Nature Climate Change, Nature, vol. 6(5), pages 514-519, May.
    6. Derek Lemoine & Ivan Rudik, 2017. "Steering the Climate System: Using Inertia to Lower the Cost of Policy," American Economic Review, American Economic Association, vol. 107(10), pages 2947-2957, October.
    7. Tol, Richard S.J., 2013. "Targets for global climate policy: An overview," Journal of Economic Dynamics and Control, Elsevier, vol. 37(5), pages 911-928.
    8. Nordhaus, William, 1982. "How Fast Should We Graze the Global Commons?," American Economic Review, American Economic Association, vol. 72(2), pages 242-246, May.
    9. Dietz, Simon & Stern, Nicholas, 2015. "Endogenous growth, convexity of damage and climate risk: how Nordhaus’ framework supports deep cuts in carbon emissions," LSE Research Online Documents on Economics 58406, London School of Economics and Political Science, LSE Library.
    10. van den Bijgaart, Inge & Gerlagh, Reyer & Liski, Matti, 2016. "A simple formula for the social cost of carbon," Journal of Environmental Economics and Management, Elsevier, vol. 77(C), pages 75-94.
    11. Nico Bauer & Valentina Bosetti & Meriem Hamdi-Cherif & Alban Kitous & David L Mccollum & Aurélie Méjean & Shilpa Rao & Hal Turton & Leonidas Paroussos & Shuichi Ashina & Katherine Calvin & Kenichi Wad, 2015. "CO2 emission mitigation and fossil fuel markets: Dynamic and international aspects of climate policies," Post-Print hal-01086076, HAL.
    12. Yongyang Cai & Timothy M. Lenton & Thomas S. Lontzek, 2016. "Risk of multiple interacting tipping points should encourage rapid CO2 emission reduction," Nature Climate Change, Nature, vol. 6(5), pages 520-525, May.
    13. H. Damon Matthews & Nathan P. Gillett & Peter A. Stott & Kirsten Zickfeld, 2009. "The proportionality of global warming to cumulative carbon emissions," Nature, Nature, vol. 459(7248), pages 829-832, June.
    14. Barbier, Edward B. & Burgess, Joanne C., 2017. "Depletion of the global carbon budget: a user cost approach," Environment and Development Economics, Cambridge University Press, vol. 22(6), pages 658-673, December.
    15. Myles R. Allen, 2016. "Drivers of peak warming in a consumption-maximizing world," Nature Climate Change, Nature, vol. 6(7), pages 684-686, July.
    16. Dietz, Simon & Venmans, Frank, 2019. "Cumulative carbon emissions and economic policy: In search of general principles," Journal of Environmental Economics and Management, Elsevier, vol. 96(C), pages 108-129.
    17. Dietz, Simon & Gollier, Christian & Kessler, Louise, 2018. "The climate beta," Journal of Environmental Economics and Management, Elsevier, vol. 87(C), pages 258-274.
    18. Mikhail Golosov & John Hassler & Per Krusell & Aleh Tsyvinski, 2014. "Optimal Taxes on Fossil Fuel in General Equilibrium," Econometrica, Econometric Society, vol. 82(1), pages 41-88, January.
    19. Massimo Tavoni & Elmar Kriegler & Keywan Riahi & Detlef P. van Vuuren & Tino Aboumahboub & Alex Bowen & Katherine Calvin & Emanuele Campiglio & Tom Kober & Jessica Jewell & Gunnar Luderer & Giacomo Ma, 2015. "Post-2020 climate agreements in the major economies assessed in the light of global models," Nature Climate Change, Nature, vol. 5(2), pages 119-126, February.
    20. T. Gasser & C. Guivarch & K. Tachiiri & C. D. Jones & P. Ciais, 2015. "Negative emissions physically needed to keep global warming below 2 °C," Nature Communications, Nature, vol. 6(1), pages 1-7, November.
    21. Christian Gollier, 2012. "Pricing the Planet's Future: The Economics of Discounting in an Uncertain World," Economics Books, Princeton University Press, edition 1, volume 1, number 9894.
    22. William Nordhaus, 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, University of Chicago Press, vol. 1(1), pages 000.
    23. Simon Dietz & Nicholas Stern, 2015. "Endogenous Growth, Convexity of Damage and Climate Risk: How Nordhaus' Framework Supports Deep Cuts in Carbon Emissions," Economic Journal, Royal Economic Society, vol. 0(583), pages 574-620, March.
    24. Luke G. Fitzpatrick & David L. Kelly, 2017. "Probabilistic Stabilization Targets," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 4(2), pages 611-657.
    25. Armon Rezai & Frederick Van der Ploeg, 2016. "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, University of Chicago Press, vol. 3(2), pages 493-522.
    26. Elmar Kriegler & John Weyant & Geoffrey Blanford & Volker Krey & Leon Clarke & Jae Edmonds & Allen Fawcett & Gunnar Luderer & Keywan Riahi & Richard Richels & Steven Rose & Massimo Tavoni & Detlef Vuu, 2014. "The role of technology for achieving climate policy objectives: overview of the EMF 27 study on global technology and climate policy strategies," Climatic Change, Springer, vol. 123(3), pages 353-367, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Frederick Ploeg & Armon Rezai, 2019. "Simple Rules for Climate Policy and Integrated Assessment," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 72(1), pages 77-108, January.
    2. Richard S.J. Tol, 2021. "Estimates of the social cost of carbon have not changed over time," Working Paper Series 0821, Department of Economics, University of Sussex Business School.
    3. Richard S. J. Tol, 2021. "Estimates of the social cost of carbon have increased over time," Papers 2105.03656, arXiv.org, revised Aug 2022.
    4. Rick Van der Ploeg & Armon Rezai, 2017. "The Simple Arithmetic of Carbon Pricing and Stranded Assets," OxCarre Working Papers 197, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    5. van der Ploeg, Frederick & ,, 2018. "Pricing Carbon Under Economic and Climactic Risks: Leading-Order Results from Asymptotic Analysis," CEPR Discussion Papers 12642, C.E.P.R. Discussion Papers.
    6. Agliardi, Elettra & Xepapadeas, Anastasios, 2022. "Temperature targets, deep uncertainty and extreme events in the design of optimal climate policy," Journal of Economic Dynamics and Control, Elsevier, vol. 139(C).
    7. Rising, James A. & Taylor, Charlotte & Ives, Matthew C. & Ward, Robert E.t., 2022. "Challenges and innovations in the economic evaluation of the risks of climate change," LSE Research Online Documents on Economics 114941, London School of Economics and Political Science, LSE Library.
    8. Rising, James A. & Taylor, Charlotte & Ives, Matthew C. & Ward, Robert E.T., 2022. "Challenges and innovations in the economic evaluation of the risks of climate change," Ecological Economics, Elsevier, vol. 197(C).
    9. Richard S J Tol, 2018. "The Economic Impacts of Climate Change," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 12(1), pages 4-25.
    10. Hambel, Christoph & Kraft, Holger & Schwartz, Eduardo, 2021. "The social cost of carbon in a non-cooperative world," Journal of International Economics, Elsevier, vol. 131(C).
    11. van der Ploeg, Frederick & Rezai, Armon, 2021. "Optimal carbon pricing in general equilibrium: Temperature caps and stranded assets in an extended annual DSGE model," Journal of Environmental Economics and Management, Elsevier, vol. 110(C).
    12. Moritz A. Drupp & Frikk Nesje & Robert C. Schmidt & Robert Christian Schmidt, 2022. "Pricing Carbon," CESifo Working Paper Series 9608, CESifo.
    13. van der Ploeg, Frederick & Rezai, Armon, 2017. "Cumulative emissions, unburnable fossil fuel, and the optimal carbon tax," Technological Forecasting and Social Change, Elsevier, vol. 116(C), pages 216-222.
    14. Traeger, Christian, 2021. "ACE - Analytic Climate Economy," CEPR Discussion Papers 15968, C.E.P.R. Discussion Papers.
    15. Dietz, Simon & Venmans, Frank, 2019. "Cumulative carbon emissions and economic policy: In search of general principles," Journal of Environmental Economics and Management, Elsevier, vol. 96(C), pages 108-129.
    16. Christoph Hambel & Holger Kraft & Frederick van der Ploeg, 2024. "Asset Diversification Versus Climate Action," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 65(3), pages 1323-1355, August.
    17. Olijslagers, Stan & van der Ploeg, Frederick & van Wijnbergen, Sweder, 2023. "On current and future carbon prices in a risky world," Journal of Economic Dynamics and Control, Elsevier, vol. 146(C).
    18. Schultes, Anselm & Piontek, Franziska & Soergel, Bjoern & Rogelj, Joeri & Baumstark, Lavinia & Kriegler, Elmar & Edenhofer, Ottmar & Luderer, Gunnar, 2020. "Economic damages from on-going climate change imply deeper near-term emission cuts," MPRA Paper 103655, University Library of Munich, Germany.
    19. Rick Van der Ploeg & Christoph Hambel & Holger Kraft, 2020. "Asset Pricing and Decarbonization: Diversification versus Climate Action," Economics Series Working Papers 901, University of Oxford, Department of Economics.
    20. Cees A. Withagen, 2018. "The Social Cost of Carbon and the Ramsey Rule," CESifo Working Paper Series 7359, CESifo.

    More about this item

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:climat:v:147:y:2018:i:1:d:10.1007_s10584-017-2132-8. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.