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The climate beta


  • Simon Dietz
  • Christian Gollier
  • Louise Kessler


Reducing emissions of CO2 today is expected to reduce climate damages in the future. In this paper, we examine the question of whether fighting climate change has the additional advantage of reducing the aggregate risk borne by future generations. This raises the question of the ‘climate beta’, i.e. the elasticity of climate damages with respect to a change in aggregate consumption. Using the DICE integrated assessment model, we show that the climate beta is positive and close to unity, due above all to the effect of uncertainty about technological progress. In estimating the social cost of carbon, this justifies using a relatively larger rate to discount expected climate damages. On the other hand, expected climate damages are themselves made larger by this effect and overall the NPV of emissions reductions today is increased by the climate beta.

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  • Simon Dietz & Christian Gollier & Louise Kessler, 2015. "The climate beta," GRI Working Papers 190, Grantham Research Institute on Climate Change and the Environment.
  • Handle: RePEc:lsg:lsgwps:wp190

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    Cited by:

    1. Daniel Harenberg & Stefano Marelli & Bruno Sudret & Viktor Winschel, 2017. "Uncertainty Quantification and Global Sensitivity Analysis for Economic Models," CER-ETH Economics working paper series 17/265, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    2. Michael Spackman, 2017. "Social discounting: the SOC/STP divide," GRI Working Papers 182, Grantham Research Institute on Climate Change and the Environment.
    3. Rick van der Ploeg, 2017. "The Safe Carbon Budget," CESifo Working Paper Series 6620, CESifo Group Munich.
    4. Roland Hodler, Anna Bruderle, 2017. "The effect of oil spills on infant mortality," OxCarre Working Papers 196, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.

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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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