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The Risk-Adjusted Carbon Price
If you wish join the seminar remotely you may be able to do so, please email gpi-office@philosophy.ox.ac.uk for more details.
The optimal carbon price is a Pigouvian tax and depends on geo-physical considerations, economic factors such as the growth in emissions and the factors determining the ratio of damages to GDP, and ethical determinants such as the rate of time impatience and intergenerational inequality aversion. Our concern here is to extend this to allow for a variety of climatic, damage and economic risks. We therefore use perturbation methods to derive a rule for the optimal risk-adjusted social cost of carbon or carbon price that incorporates the effects of uncertainties associated with climate and the economy from a calibrated DSGE model. We allow for different aversions to risk and intertemporal fluctuations, convex damages, uncertainties in economic growth, atmospheric carbon, climate sensitivity and damages, their correlations, and distributions that are skewed in the longer run to capture long-run climate feedbacks. Our non-certainty-equivalent rule for the optimal risk-adjusted discount rate and the optimal risk-adjusted carbon price incorporates precaution, risk insurance, and climate sensitivity and damage rate hedging effects to deal with future economic and climatic and damage risks. We will conclude with a discussion of risk-adjusted Hotelling rules to keep temperature below a cap and with the risk of stranded financial assets and fossil fuel reserves. (the talk is based on joint work with Ton van den Bremer)
Date:
14 June 2019, 12:00
Venue:
Manor Road Building, Manor Road OX1 3UQ
Venue Details:
Seminar Room C
Speaker:
Rick van der Ploeg (University of Oxford)
Booking required?:
Not required
Audience:
Members of the University only
Editor:
Melis Clark
