Intergenerational inequality aversion, growth and the role of damages: Occam?s rule for the global carbon tax

Frederick (Rick) van der Ploeg and Armon Rezai

No 10292, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We use the Euler equation to put forward a back-on-the-envelope rule for the global carbon tax based on a two-box carbon cycle with temperature lag, and a constant elasticity of marginal damages with respect to GDP. This tax falls with time impatience and intergenerational inequality aversion and rises with population growth and prudence. It also falls with growth in living standards if inequality aversion is large enough or marginal damages do not react much to GDP. It rises in proportion with GDP if marginal climate damages are proportional to output and has a flat time profile if they are additive. The rule also allows for mean reversion in climate damages. The rule closely approximates the true optimum for our IAM of Ramsey growth, scarce fossil fuel, energy transitions and stranded assets despite it using the more complicated DICE carbon cycle and temperature modules. The simple rule gets close to the social optimum even if damages are much more convex than in DICE.

Keywords: Simple rule; Scc; Ramsey growth; Optimal energy transitions; Stranded assets; Intergenerational inequality aversion; Climate damage specification (search for similar items in EconPapers)
JEL-codes: H21 Q51 Q54 (search for similar items in EconPapers)
Date: 2014-12
New Economics Papers: this item is included in nep-ene, nep-env and nep-res
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Intergenerational Inequality Aversion, Growth, and the Role of Damages: Occam's Rule for the Global Carbon Tax (2016)
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