@article{a9dee565f4a1404e9c523d2babe781b2,
title = "Optimal carbon abatement in a stochastic equilibrium model with climate change",
abstract = "There is much discussion in the literature about the resources society should commit to ameliorate the effects of climate change. The optimal greenhouse gas abatement strategy has a direct relation to the social cost of carbon (SCC) which measures the externalities incurred in emitting one ton of carbon dioxide into the atmosphere. This paper studies a dynamic stochastic general equilibrium model involving climate change which allows for a systematic analysis of the SCC. One special feature of the framework is that it considers feedback effects on the temperature dynamics. We compare two approaches to capture damaging effects of temperature on output (level vs. growth rate impact) and find that there are notable differences in the optimal abatement strategy and the SCC. We document that climate uncertainty delivers a major contribution to the social cost of carbon. In particular, different types of climate shocks amplify each other and give an additional boost to the social cost of carbon. We also analyze the effect of risk aversion and the elasticity of intertemporal substitution on the SCC.",
keywords = "Carbon abatement, Climate change economics, GDP Growth, Social cost of carbon, Stochastic differential utility",
author = "Christoph Hambel and Holger Kraft and Eduardo Schwartz",
note = "Funding Information: We thank Christian Gollier, Lars Hansen, Isabelle Mejean, (the editor), Frederick van der Ploeg, Armon Rezai, Christian Traeger, and anonymous referees for helpful comments and suggestions. We also thank participants of the 23rd Annual Conference of the European Association of Environmental and Resource Economists (EAERE 2017), the FinanceUC Conference, Santiago, Chile, the Santiago Finance Workshop, Chile, the Frankfurt-Mannheim Macro Workshop, and the joint seminar of the Humboldt University Berlin and ESMT for their comments and suggestions. All remaining errors are of course our own. Holger Kraft and Christoph Hambel gratefully acknowledge financial support by Deutsche Forschungsgemeinschaft (DFG). Funding Information: We thank Christian Gollier, Lars Hansen, Isabelle Mejean, (the editor), Frederick van der Ploeg, Armon Rezai, Christian Traeger, and anonymous referees for helpful comments and suggestions. We also thank participants of the 23rd Annual Conference of the European Association of Environmental and Resource Economists (EAERE 2017), the FinanceUC Conference, Santiago, Chile, the Santiago Finance Workshop, Chile, the Frankfurt-Mannheim Macro Workshop, and the joint seminar of the Humboldt University Berlin and ESMT for their comments and suggestions. All remaining errors are of course our own. Holger Kraft and Christoph Hambel gratefully acknowledge financial support by Deutsche Forschungsgemeinschaft (DFG). Publisher Copyright: {\textcopyright} 2020 Elsevier B.V.",
year = "2021",
month = feb,
doi = "10.1016/j.euroecorev.2020.103642",
language = "English",
volume = "132",
journal = "European Economic Review",
issn = "0014-2921",
publisher = "Elsevier Science BV",
}