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An Economic Anatomy of Optimal Climate Policy

Author

Listed:
  • Juan Moreno-Cruz
  • Gernot Wagner
  • David W. Keith

Abstract

This paper introduces geoengineering into an optimal control model of climate change economics. Together with mitigation and adaptation, carbon and solar geoengineering span the universe of possible climate policies. Their wildly different characteristics have important implications for climate policy. We show in the context of our model that: (i) the optimal carbon tax equals the marginal cost of carbon geoengineering; (ii) the introduction of either form of geoengineering leads to higher emissions yet lower temperatures; (iii) in a world with above-optimal cumulative emissions, only a complete set of instruments can minimize climate damages.

Suggested Citation

  • Juan Moreno-Cruz & Gernot Wagner & David W. Keith, 2018. "An Economic Anatomy of Optimal Climate Policy," CESifo Working Paper Series 7059, CESifo.
    • Handle: RePEc:ces:ceswps:_7059
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    Cited by:

    1. Wei Jin & ZhongXiang Zhang, 2018. "Capital Accumulation, Green Paradox, and Stranded Assets: An Endogenous Growth Perspective," Working Papers 2018.33, Fondazione Eni Enrico Mattei.
    2. Juan Moreno-Cruz & Anthony Harding, 2022. "A Unifying Theory of Foreign Intervention in Domestic Climate Policy," CESifo Working Paper Series 10172, CESifo.
    3. Tsigaris, Panagiotis & Wood, Joel, 2019. "The potential impacts of climate change on capital in the 21st century," Ecological Economics, Elsevier, vol. 162(C), pages 74-86.
    4. Jin, Wei & Shi, Xunpeng & Zhang, Lin, 2021. "Energy transition without dirty capital stranding," Energy Economics, Elsevier, vol. 102(C).
    5. Adrien Fabre & Gernot Wagner, 2020. "Availability of risky geoengineering can make an ambitious climate mitigation agreement more likely," Palgrave Communications, Palgrave Macmillan, vol. 7(1), pages 1-4, December.

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    More about this item

    Keywords

    climate change; climate policy; mitigation; adaptation; carbon geoengineering; carbon dioxide removal; solar geoengineering; solar radiation management;
    All these keywords.

    JEL classification:

    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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