Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/235462 
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 9092
Publisher: 
Center for Economic Studies and Ifo Institute (CESifo), Munich
Abstract: 
We analyse optimal abatement and carbon pricing strategies under a variety of economic, temperature and damage risks. Economic growth, convex damages and temperature-dependent risks of climatic tipping points lead to higher growth rates of carbon prices, but gradual resolution of uncertainty lowers them. For temperature-dependent economic damage tipping points, carbon prices are higher, but when the tipping point occurs, the price jumps downward. With only a temperature cap the carbon price rises at the risk-adjusted interest rate. Adding damages leads to a higher carbon price that grows more slowly. But as temperature and cumulative emissions get closer to their caps, the carbon price is ramped up ever more. Policy makers should commit to a rising path of carbon prices.
Subjects: 
CO2 prices
growth uncertainty
tipping points
damages
gradual resolution of damage uncertainty
temperature caps
JEL: 
H23
Q44
Q51
Q54
Document Type: 
Working Paper
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