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Fair Share of GDP to Mitigate Climate Change Costs (according to DICE)

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  • Fries, Christian P.

Abstract

This paper investigates the fair share of GDP required to mitigate climate change costs, using an extended DICE model. A dedicated fund, supplied annually by a fixed fraction of GDP, is introduced to cover abatement and damage costs. Numerical analysis reveals that a funding rate of 2.4% of GDP is sufficient to meet all costs, enabling faster early abatement and reducing total emissions significantly. The proposed approach promotes intergenerational equity by distributing climate-related costs evenly across generations, overcoming the classical DICE model's limitations. We investigate the interplay of the model's discount rate and the required funding rate. For low to moderate discount rates the required funding rate is largely independent of the discount rate, while high discount rate lead to higher funding rates as nominal cost increase.

Suggested Citation

  • Fries, Christian P., 2024. "Fair Share of GDP to Mitigate Climate Change Costs (according to DICE)," MPRA Paper 123001, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:123001
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    References listed on IDEAS

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    1. Gollier, Christian & Weitzman, Martin L., 2010. "How should the distant future be discounted when discount rates are uncertain?," Economics Letters, Elsevier, vol. 107(3), pages 350-353, June.
    2. Wilfred Beckerman & Cameron Hepburn, 2007. "Ethics of the Discount Rate in the Stern Review on the Economics of Climate Change," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 8(1), pages 187-210, January.
    3. Christian Fries & Lennart Quante, 2023. "Intergenerational Equity in Models of Climate Change Mitigation: Stochastic Interest Rates introduce Adverse Effects, but (Non-linear) Funding Costs can Improve Intergenerational Equity," Papers 2309.16186, arXiv.org, revised Sep 2023.
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    Keywords

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    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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