Quotation van der Ploeg, Frederick, Rezai, Armon. 2021. Optimal carbon pricing in general equilibrium: Temperature caps and stranded assets in an extended annual DSGE model. Journal of Environmental Economics and Management.




The general equilibrium model developed by Golosov et al. (2014), GHKT for short, is modified to allow for additional negative impacts of global warming on utility and productivity growth, mean reversion in the ratio of climate damages to production, labour-augmenting technical progress, and population growth. We also replace the GHKT assumption of full depreciation of capital each decade by annual logarithmic depreciation. Furthermore, we allow the government to use a lower discount rate than the private sector. We derive a tractable rule for the optimal carbon price for each of these extensions. We then simplify the GHKT model by making temperature a linear function of cumulative emissions and making the proportion of output lost due to global warming a linear function of temperature. Finally, we consider how the rule for the optimal carbon price must be modified to allow for a temperature cap, and what this implies for stranded oil and gas reserves. We illustrate our analytical results with a range of optimal policy simulations.


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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal Journal of Environmental Economics and Management
Citation Index SSCI
WU Journalrating 2009 A
WU-Journal-Rating new FIN-A, STRAT-B, VW-B, WH-B
Language English
Title Optimal carbon pricing in general equilibrium: Temperature caps and stranded assets in an extended annual DSGE model
Year 2021
URL https://www.sciencedirect.com/science/article/pii/S0095069621000875?via%3Dihub
DOI https://doi.org/10.1016/j.jeem.2021.102522
Open Access Y
Open Access Link https://doi.org/10.1016/j.jeem.2021.102522


Rezai, Armon (Details)
van der Ploeg, Frederick (Oxford U, United Kingdom)
Competence Center for Sustainability Transformation and Responsibility WE (Details)
Institute for Ecological Economics IN (Details)
Socioeconomics of Work Group AB (Details)
Research areas (Ă–STAT Classification 'Statistik Austria')
2928 Environmental economics (Details)
5325 Political economics (Details)
5334 Political economic policy (Details)
5335 Political economic theory (Details)
5341 Economic policy (Details)
5353 Environmental economics (Details)
5924 Environmental economics (Details)
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