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Optimal Climate Policy under the Possibility of a Catastrophe

This paper concerns optimal emissions of greenhouse gases when catastrophic consequences are possible. A numerical model is presented which takes into account both continuous climate-feedback damages as well as the possibility of a catastrophic outcome. The uncertainty in the model concerns whether or not a future catastrophe will occur. However, the welfare losses imposed by such an outcome are assumed known to the decision-maker. An important result is that the possibility of a climate catastrophe is a major argument for greenhouse gas abatement even in absence of continuous damage. Special attention is given to analyses on the probability of a catastrophe and the pure rate of time preferences, and the implicit values of these parameters are calculated if the Rio stabilisation target is assumed to be optimal. Finally, the expected value of perfect information about the probability of the arrival of a catastrophe is estimated.

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Paper provided by Statistics Norway, Research Department in its series Discussion Papers with number 209.

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Date of creation: Jan 1998
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Handle: RePEc:ssb:dispap:209
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  1. Stephen C Peck & Thomas J. Teisberg, 1992. "CETA: A Model for Carbon Emissions Trajectory Assessment," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 55-78.
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  5. Jon Gjerde & Sverre Grepperud & Snorre Kverndokk, 1998. "Optimal Climate Policy under the Possibility of a Catastrophe," Discussion Papers 209, Research Department of Statistics Norway.
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  21. Eyckmans, Johan & Proost, Stef & Schokkaert, Erik, 1993. "Efficiency and Distribution in Greenhouse Negotiations," Kyklos, Wiley Blackwell, vol. 46(3), pages 363-97.
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  25. Jean-Marc Burniaux & John P. Martin & Giuseppe Nicoletti & Joaquim Oliveira Martins, 1992. "GREEN a Multi-Sector, Multi-Region General Equilibrium Model for Quantifying the Costs of Curbing CO2 Emissions: A Technical Manual," OECD Economics Department Working Papers 116, OECD Publishing.
  26. Christiansen, Vidar & Jansen, Eilev S., 1978. "Implicit social preferences in the Norwegian system of indirect taxation," Journal of Public Economics, Elsevier, vol. 10(2), pages 217-245, October.
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