Optimal Emission Reduction • The problem • The solution – What will it cost? – What to do?
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Optimal Emission Reduction• The problem• The solution
– What will it cost?– What to do?
How deep?The ultimate objective of [the United Nations Framework Convention on Climate Change] [...] is to achieve [...] stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system. Such a level should be achieved within a time-frame sufficient to allow ecosystems to adapt naturally, to ensure that food production is not threatened and to enable economic development to proceed in a sustainable manner.
How deep?• Concentration
1 1
1Stabilization:
1
t t t
t t
M M EM M
EM M E M
How deep?• Maier-Reimer & Hasselmann
5
,1
5
, , 1 11
1 2 3
54
; 1
1 1/ 2; 1 1/ 17; 1 1/ 74;1 1/ 363; 1
Stabilization: 0
t i ti
i t i i ii t ti
M M
M M E
E
Optimal Climate Policy• In a static optimum, the marginal costs
should equal the marginal benefits• In a situation like climate change, where
the benefits are a stock and the costs are a flow, the marginal costs should equal the net present value of the marginal benefits
Optimal Climate Policy• In a static optimum, the marginal costs
should equal the marginal benefitsmax ( ) ( ) ( )
EW E B E C E
0 0W B C B CE E E E E
Optimal Climate Policy• In a situation like climate change, where
the benefits are a stock and the costs are a flow, the marginal costs should equal the net present value of the marginal benefits
0 1
1
1, ,...
( , ,...) ( )max ( ) ( )t t t t t
tE E t
B E E C EW Er
11( )
t s ts
s t t
B C tr E E
0
50
100
150
200
250
2005 2025 2045 2065 2085 2105
Car
bon
tax
(200
0 $
per t
on ca
rbon
)
350
400
450
500
550
600
650
700
750
2005 2025 2045 2065 2085 2105
Atm
osph
eric
con
cent
ratio
n of
car
bon
diox
ide
(ppm
)
Optimal Emission Control• If the world were ruled by a benevolent
dictator, what would she do?• A little emission reduction in the beginning,
more later, but not enough to stabilise concentrations
• The first part is robust, the second part is very sensitive to assumptions
• The last part is robust, unless there is a cheap alternative to fossil fuels
• If we consider many countries, optimal emission reduction goes down!
Gain
Emissions
Marginal private gainsf rom emissions
Marginal social lossesf rom emissions
Marginal net social gainsf rom emissions
Optimal Emission Control• If the world were ruled by a benevolent
dictator, what would she do?• A little emission reduction in the beginning,
more later, but not enough to stabilise concentrations
• The first part is robust, the second part is very sensitive to assumptions
• The last part is robust, unless there is a cheap alternative to fossil fuels
• If we consider many countries, optimal emission reduction goes down!
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