Steering the Climate System: Using Inertia to Lower the Cost of Policy
Year: 2017
Type: article
Abstract: Common views hold that the efficient way to limit warming to a chosen level is to price carbon emissions at a rate that increases exponentially. We show that this Hotelling tax on carbon emissions is actually inefficient. The least-cost policy path takes advantage of the climate system's inertia to delay reducing emissions and allow greater cumulative emissions. The efficient carbon tax follows an inverse-U-shaped path and grows more slowly than the Hotelling tax. Economic models that assume exponentially increasing carbon taxes are overestimating the cost of limiting warming, overestimating the efficient near-term carbon tax, and overvaluing technologies that mature sooner. (JEL H23, Q54, Q58)
Source: American Economic Review
DOI: 10.1257/aer.20150986
Authors: Derek Lemoine, Ivan Rudik
Institutions: University of Arizona, Iowa State University
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
SDG: Climate action
Open Access status: green
OpenAlex ID: W3123907304