OPTIMAL CLIMATE POLICY WITH NEGATIVE EMISSIONS

Riccardo Rebonato, Dherminder Kainth, Lionel Melin and O’KANE Dominic
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Riccardo Rebonato: EDHEC-Risk Climate Impact Institute, 400 Promenade des Anglais. BP 3116, 06202 Nice Cedex 3, France
Dherminder Kainth: EDHEC-Risk Climate Impact Institute, 400 Promenade des Anglais. BP 3116, 06202 Nice Cedex 3, France
Lionel Melin: EDHEC-Risk Climate Impact Institute, 400 Promenade des Anglais. BP 3116, 06202 Nice Cedex 3, France
O’KANE Dominic: EDHEC-Risk Climate Impact Institute, 400 Promenade des Anglais. BP 3116, 06202 Nice Cedex 3, France

International Journal of Theoretical and Applied Finance (IJTAF), 2024, vol. 27, issue 01, 1-28

Abstract: We can limit the future temperature impact of climate change in two ways: (i) reducing our use of CO2 emitting fuels as an energy source (abatement), and (ii) using negative emission technologies (NETs) to remove existing CO2 from the atmosphere (removal). Using a modification of the DICE model, we analyze the optimal use of these two policy responses to climate change. After calibrating the marginal costs of abatement and CO2 removal to the latest scientific information, we find that carbon removal must play a very large role in an optimal policy. If this policy is followed, we find that the Paris-Agreement 1.5–2∘C warming by 2100 target is not just aspirational, but optimal. When an important role is played by NETs to control global warming, the decrease in carbon emissions can be more gradual, reducing transition risk and social dislocations. We examine the impact on the economy of large-scale carbon removal programs, the potential for moral hazard and the logistical problems associated with the storage of the removed carbon.

Keywords: Climate change; global warming; negative emissions technologies; integrated assessment models (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1142/S0219024924500122

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