Resource title

The Opportunity Cost of Climate Policy: A Question of Reference

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Question of Reference

Resource description

The cost of climate policy depends on the no-policy alternative without which the opportunity cost of climate action cannot be determined. This reference path has to reflect the current failure in the market for carbon emissions: due to a negative externality, private investment decisions do not consider the climate damage they entail; agents overinvest in conventional capital and underinvest in climate capital. Internalization of climate damage lowers the private return to capital; agents reduce investment in favor of mitigation and consumption. Optimal climate mitigation increases welfare of the present and the future. Simulation of the inefficient no-policy scenario in DICE-07 confirms that this point numerically. (author's abstract)

Resource author

Armon Rezai

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Resource language

en

Resource content type

application/pdf

Resource resource URL

http://epub.wu.ac.at/3481/1/GlobalWarmingBAU110516.pdf

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Adapt according to the license agreement. Always reference the original source and author.