Quotation Rezai, Armon, van der Ploeg, Frederick. 2019. The Agnostic's Response to Climate Deniers: Price Carbon! European Economic Review. 111 70-84.


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Abstract

With the election of President Trump, climate deniers feel emboldened and moved from the fringes to the centre of global policy making. We study how an agnostic approach to policy, based on Pascal's wager and allowing for subjective prior probability beliefs about whether climate deniers are right, prices carbon. Using the DICE integrated assessment model, we find that assigning a 10% chance of climate deniers being correct lowers the global price on carbon in 2020 only marginally: from $21 to $19 per ton of carbon dioxide if policymakers apply ‘Nordhaus discounting’ and from $91 to $84 per ton of carbon dioxide if they apply ‘Stern discounting’. Agnostics’ reflection of remaining scientific uncertainty leaves climate policy essentially unchanged. The robustness of an ambitious climate policy also follows from using the max-min or the min-max regret principle. Letting the coefficient of relative ambiguity aversion vary from zero, corresponding to expected utility analysis, to infinity, corresponding to the max-min principle, we show how policy makers deal with fundamental climate model uncertainty if they are prepared to assign prior probabilities to different views of the world being correct. Allowing for an ethical discount rate and a higher market discount rate and for a wide range of sensitivity exercises including damage uncertainty, we show that pricing carbon is the robust response under rising climate scepticism.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal European Economic Review
Citation Index SSCI
WU Journalrating 2009 A
WU-Journal-Rating new FIN-A, VW-A, WH-B
Language English
Title The Agnostic's Response to Climate Deniers: Price Carbon!
Volume 111
Year 2019
Page from 70
Page to 84
Reviewed? Y
DOI http://dx.doi.org/10.1016/j.euroecorev.2018.08.010
Open Access N

Associations

People
Rezai, Armon (Details)
External
van der Ploeg, Frederick (Oxford University, United Kingdom)
Organization
Institute for Ecological Economics IN (Details)
Research areas (ÖSTAT 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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