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Climate Tipping and Economic Growth: Precautionary Capital and the Price of Carbon

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  • Frederick van der Ploeg
  • Aart de Zeeuw

Abstract

The optimal reaction to a productivity shock which becomes more imminent with global warming is to price carbon (proportional to the marginal hazard of a catastrophe) to curb the risk of climate change, but also to accumulate precautionary capital to facilitate smoothing of consumption and curb the adverse effects of the calamity on the economy. We allow for conventional marginal climate damages as well and decompose the optimal carbon price in two catastrophe components and a conventional component. Moreover, the producivity catastrophe is compared with recoverable catastrophes and with a shock to the temperature response.

Suggested Citation

  • Frederick van der Ploeg & Aart de Zeeuw, 2013. "Climate Tipping and Economic Growth: Precautionary Capital and the Price of Carbon," OxCarre Working Papers 118, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  • Handle: RePEc:oxf:oxcrwp:118
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    File URL: https://www.economics.ox.ac.uk/materials/OxCarre/ResearchPapers/oxcarrerp2013118.pdf
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    References listed on IDEAS

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    Cited by:

    1. van der Ploeg, Frederick & Rezai, Armon, 2019. "The agnostic's response to climate deniers: Price carbon!," European Economic Review, Elsevier, vol. 111(C), pages 70-84.
    2. Steinar Strøm & Jon Vislie, 2019. "Wealth Management and Uncertain Tipping Points," CESifo Working Paper Series 7487, CESifo Group Munich.
    3. van der Ploeg, Frederick, 2014. "Abrupt positive feedback and the social cost of carbon," European Economic Review, Elsevier, vol. 67(C), pages 28-41.

    More about this item

    Keywords

    non-marginal climate Shock; tipping point; precautionary capital accumulation; economic growth; social cost of carbon; risk avoidance;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)

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