Consistent climate policies

Reyer Gerlagh, Matti Liski

Research output: Contribution to journalArticleScientificpeer-review

46 Citations (Scopus)


What are the optimal climate policies when time preferences deviate from the standard exponential discounting and decision makers cannot commit to future policies? We show that, with time-declining discounting, the delay and persistence of climate impacts provide a commitment device to policy makers. We quantify the commitment value in a climate-economy model by solving time-consistent Markov equilibrium capital and emission taxes explicitly. The returns on capital and climate investments are no longer equal, leading to a large increase in the emission tax, compared to a benchmark with equalized returns. The commitment value increases the tax by a factor of 20 in our quantitative assessment.
Original languageEnglish
Pages (from-to)1-44
JournalJournal of the European Economic Association
Issue number1
Early online dateMar 2017
Publication statusPublished - Feb 2018


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