Conference Agenda

This research investigates the interplay between climate change damages, mitigation policies, and distributional concerns about consumption outcomes across heterogeneous regions. We propose carbon permit trading systems designed to strike a delicate balance between economic efficiency, equity, and stability of self-enforcing cooperation. Using an integrated assessment model including climate-induced capital depreciation and total factor productivity growth losses, we determine welfare maximizing initial allocations of permits that address participation constraints. Our findings demonstrate that carefully chosen emission caps, coupled with an appropriate allocation of permits, can lay the foundation for stable cooperation between nations.

The extent of future climate change is largely a policy choice. We illuminate this choice with climate policy curves (CPCs), which link climate policies to subsequent global temperatures. The estimated downward sloping CPCs highlight the key trade-off between initial policy ambition, expressed via an overall effective carbon price, and the subsequent policy burden left for future generations. We also illustrate how different CPCs can illuminate the climate policy paths towards attaining the UN Climate Targets. Based on the latest Intergovernmental Panel on Climate Change (IPCC) integrated-assessment model scenarios, we estimate an implicit CPC, which provides a high-level summary of assumptions underlying the IPCC’s assessment about climate policy trade-offs. We show that by virtue of their reductionism, CPCs serve as a useful model diagnostic and communication tool for climate policy discussions.

I study the effectiveness of subsidies as an alternative to carbon taxes to reduce carbon emissions in a quantitative climate-economy model. An energy firm uses brown and green energy inputs to produce energy. A firm-household then combines energy with capital and labor to produce final goods. The short-run elasticity between energy and other inputs is low. However, higher energy prices encourage higher energy efficiency, leading to a higher elasticity in the long run. The key weakness of green energy subsidies, as an alternative to carbon taxes, is that they cannot promote higher energy efficiency. Thus, in the baseline model, the optimal green subsidies result in a modest 1.0% decrease in emissions by the end of the century compared to the business-as-usual scenario. However, if the government can subsidize green energy usage and energy-saving technical change simultaneously, the optimal subsidies could be nearly as effective in reducing emissions as the first-best brown energy taxes. Under this approach, cumulative carbon emissions are reduced by 12.2% by the end of the century.

Integrated assessment models are widely used in economic analysis for deriving best-response policies to the threat of anthropogenic climate change. In this paper, we investigate how the degree of capital malleability influences the optimal climate policy design for alternative assumptions on climate damages and the timing of net-zero emissions policies. We compare a putty-putty setting, where capital is malleable both ex-ante and ex-post of investment decisions with a putty-clay setting where capital intensity cannot be changed ex-post. We find that optimal policy responses differ substantially as the short-term pressure for emissions abatement increases (i.e., climate damages are sufficiently high) or if there is uncertainty on the timing of a net-zero policy. With high climate damages, putty-clay requires much stronger emission intensity improvements than suggested by putty-putty due to the inertia of capital vintages. This must be reflected in command-and-control strategies when straight carbon pricing at the social cost of carbon is not feasible. We also show that hedging against policy uncertainty – such as the timing of net-zero emissions – can create substantial differences in the optimal abatement path between putty-putty and putty-clay.