Temperature targets, deep uncertainty and extreme events in the design of optimal climate policy

Elettra Agliardi and Anastasios Xepapadeas

Journal of Economic Dynamics and Control, 2022, vol. 139, issue C

Abstract: We study optimal climate policy consistent with the constraint that average global temperature remains below 1.5 ∘ C relative to pre-industrial levels. We consider a holistic representation of uncertainty including traditional risk, deep uncertainty and stochastic arrivals of climate-related disasters. Using robust control methods, we derive optimal emission and carbon tax paths and calculate when temperature exceeds the target in the absence of the constraint. We show that policy under deep uncertainty requires strong action now relative to pure risk but the policy stringency is reversed later. Preliminary estimates suggest that the COVID-19 impact on attainment of the temperature target is negligible.

Keywords: Temperature target; Damage volatility; Deep uncertainty; Model misspecification; Extreme events; Robust control; Emission scheduling; Carbon taxes (search for similar items in EconPapers)
JEL-codes: D8 Q54 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165188922001312
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:139:y:2022:i:c:s0165188922001312

DOI: 10.1016/j.jedc.2022.104425

Access Statistics for this article

Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

More articles in Journal of Economic Dynamics and Control from Elsevier
Bibliographic data for series maintained by Catherine Liu ().