Relative Prices and Climate Policy: How the Scarcity of Non-Market Goods Drives Policy Evaluation

Moritz Drupp and Martin C. Hänsel

No 8052, CESifo Working Paper Series from CESifo

Abstract: Climate change not only impacts production and market consumption, but also the relative scarcity of non-market goods, such as environmental amenities. We study fundamental drivers of the resulting relative price changes, their potential magnitude, and their implications for climate policy in Nordhaus’ prominent DICE model, thereby addressing one of its key criticisms. We propose plausible ranges for these relative prices changes based on best available evidence. Our central calibration reveals that accounting for relative prices is equivalent to decreasing pure time preference by 0.6 percentage points and leads to a more than 50 percent higher social cost of carbon.

Keywords: climate policy; discounting; non-market goods; social cost of carbon; substitutability (search for similar items in EconPapers)
JEL-codes: D61 D90 H43 Q01 Q54 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-agr, nep-ene and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Relative Prices and Climate Policy: How the Scarcity of Nonmarket Goods Drives Policy Evaluation (2021)
Working Paper: Relative prices and climate policy: How the scarcity of non-market goods drives policy evaluation (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_8052

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