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The Opportunity Cost of Climate Policy: A Question of Reference

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)

Identiferoai:union.ndltd.org:VIENNA/oai:epub.wu-wien.ac.at:3481
Date January 2011
CreatorsRezai, Armon
PublisherWiley-Blackwell
Source SetsWirtschaftsuniversität Wien
LanguageEnglish
Detected LanguageEnglish
TypeArticle, NonPeerReviewed
Formatapplication/pdf
Relationhttp://dx.doi.org/10.1111/j.1467-9442.2011.01681.x, http://epub.wu.ac.at/3481/

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