The risk-adjusted carbon price

Ton van den Bremer and Frederick (Rick) van der Ploeg

No 7592, CESifo Working Paper Series from CESifo

Abstract: We use perturbation methods to derive a rule for the optimal risk-adjusted social cost of carbon (SCC) 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 SCC incorporates precaution, risk insurance, and climate sensitivity and damage rate hedging effects to deal with future economic and climatic and damage risks.

Keywords: precaution; insurance; hedging; economic; climatic and damage uncertainties; skewness; mean reversion; correlated risks; risk aversion; intergenerational inequality aversion; convex damages (search for similar items in EconPapers)
JEL-codes: H21 Q51 Q54 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-dge, nep-ene and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Journal Article: The Risk-Adjusted Carbon Price (2021)
Working Paper: The risk-adjusted carbon price (2021)
Working Paper: The Risk-Adjusted Carbon Price (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_7592

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