Steering the climate system: Using inertia to lower the cost of policy

Derek Lemoine, Ivan Rudik

Research output: Contribution to journalArticle

12 Scopus citations

Abstract

Common views hold 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 to delay reducing emissions and allow greater cumulative emissions. The efficient carbon tax follows an inverse-U-shaped path and grows more slowly than the Hotelling tax. Economic models that assume exponentially increasing carbon taxes are overestimating the cost of limiting warming, overestimating the efficient near-term carbon tax, and overvaluing technologies that mature sooner.

Original languageEnglish (US)
Pages (from-to)2947-2957
Number of pages11
JournalAmerican Economic Review
Volume107
Issue number10
DOIs
StatePublished - Oct 2017

ASJC Scopus subject areas

  • Economics and Econometrics

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