OPTIMAL CARBON EMISSIONS TRAJECTORIES WHEN DAMAGES DEPEND ON THE RATE OR LEVEL OF GLOBAL WARMING

In this paper we extend our earlier work with the Carbon Emissions Trajectory Assessment model (CETA) to consider a number of issues relating to the nature of optimal carbon emissions trajectories. We first explore model results when warming costs are associated with the rate of temperature rise, rather than with its level, as in our earlier work. We find that optimal trajectories are more strongly affected by the degree of non-linearity in the warming cost function than by whether the cost function is driven by the warming level or the warming rate. Next we briefly explore the implications of simple uncertainty and risk aversion for optimal emissions trajectories. We find that uncertainty and risk aversion cause optimal emissions trajectories to be somewhat lower, but that the effect is not noticeable in the near term and not dramatic in the long term; the long term effect on the shadow price of carbon is more marked, however. Finally, we experiment with scaling up the warming cost functions until optimal policies are approximately the same as a policy of stabilizing emissions at the 1990 level. Based on the results of this experiment, we conclude that damages would have to be very high to justify anything like a stabilization policy; and even in this case, a policy allowing intertemporal variation in emissions would be better.