Institutional Affiliation: University of Lausanne
|Pareto-Improving Carbon-Risk Taxation|
with , , : w26919
Anthropogenic climate change produces two conceptually distinct negative economic externalities. The first is an expected path of climate damage. The second, which is this paper's focus, is an expected path of economic risk. To isolate the climate-risk problem, we consider mean-zero, symmetric shocks in our 12-period, overlapping generations model. These shocks impact dirty energy usage (carbon emissions), the relationship between carbon concentration and temperature, and the connection between temperature and damages. Our model exhibits a de minimis climate problem absent its shocks. But due to non-linearities, symmetric shocks deliver negatively skewed impacts, including the potential for climate disasters. As we show, Pareto-improving carbon taxation can dramatically lower climate risk,...
|Making Carbon Taxation a Generational Win Win|
with , , , : w25760
Carbon taxation has been studied primarily in social planner or infinitely lived agent models, which trade off the welfare of future and current generations. Such frameworks obscure the potential for carbon taxation to produce a generational win-win. This paper develops a large-scale, dynamic 55-period, OLG model to calculate the carbon tax policy delivering the highest uniform welfare gain to all generations. The OLG framework, with its selfish generations, seems far more natural for studying climate damage. Our model features coal, oil, and gas, each extracted subject to increasing costs, a clean energy sector, technical and demographic change, and Nordhaus (2017)’s temperature/damage functions. Our model’s optimal uniform welfare increasing (UWI) carbon tax starts at $30 tax, rises annu...