Economics Working Papers
Publication Date
7-2015
Number
16014
Abstract
Conventional wisdom holds that the efficient way to limit warming to a chosen level is to price carbon emissions at a rate that increases exponentially. We show that this “Hotelling” tax on carbon emissions is actually inefficient. The least-cost policy path takes advantage of the climate system’s inertia by growing more slowly than exponentially. Carbon dioxide temporarily overshoots the steady-state level consistent with the temperature limit, and the efficient carbon tax follows an inverse-U-shaped path. Economic models that assume exponentially increasing carbon taxes are overestimating the minimum cost of limiting warming, overestimating the efficient near-term carbon tax, and overvaluing technologies that mature sooner.
JEL Classification
H23, Q54, Q58
File Format
application/pdf
Length
34 pages
Recommended Citation
Lemoine, Derek and Rudik, Ivan, "Steering the Climate System: Using Inertia to Lower the Cost of Policy" (2015). Economics Working Papers: 16014.
https://lib.dr.iastate.edu/econ_workingpapers/13
Included in
Agricultural and Resource Economics Commons, Climate Commons, Natural Resource Economics Commons, Public Economics Commons
