Consistent climate policies

Reyer Gerlagh, Matti Liski

Research output: Contribution to journalArticleScientificpeer-review

Abstract

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
Volume16
Issue number1
Early online dateMar 2017
DOIs
Publication statusPublished - Feb 2018

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Climate
Climate policy
Discounting
Emission taxes
Capital tax
Benchmark
Politicians
Decision maker
Tax
Persistence
Capital investment
Time preference
Markov equilibrium
Factors

Cite this

Gerlagh, Reyer ; Liski, Matti. / Consistent climate policies. In: Journal of the European Economic Association. 2018 ; Vol. 16, No. 1. pp. 1-44.
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Consistent climate policies. / Gerlagh, Reyer; Liski, Matti.

In: Journal of the European Economic Association, Vol. 16, No. 1, 02.2018, p. 1-44.

Research output: Contribution to journalArticleScientificpeer-review

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