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The extent of future climate change is a policy choice. Using an integrated climate-economy assessment model, we estimate climate policy curves (CPCs) that link the price of carbon dioxide (CO2) to subsequent global temperatures. The resulting downward sloping CPCs quantify the inverse relationship between carbon prices and future temperatures and illustrate how climate policy choices determine climate outcomes. Our analysis can account for a variety of climate policies – for example, carbon or fuel taxes, emissions trading programs, green subsidies, and energy-efficiency regulations – all of which can be summarized by means of an effective CO2 price. Importantly, we also examine CPC uncertainty, for example, by perturbing the model's equilibrium climate sensitivity to trace out the temperature range associated with a given CO2 price. Finally, based on the latest Intergovernmental Panel on Climate Change (IPCC) integrated-assessment model scenarios, we estimate an implicit CPC, which provides a high-level IPCC summary of the climate policy actions required to achieve global climate targets.

We model a stylized economy dependent on agriculture and fisheries to study optimal environmental policy in the face of interacting external effects of ocean acidification, global warming, and eutrophication. This allows us to capture some of the latest insights from research on ocean acidification. Using a static two-sector general equilibrium model we derive optimal rules for national taxes on (Formula presented.) emissions and agricultural run-off and show how they depend on both isolated and interacting damage effects. In addition, we derive a second-best rule for a tax on agricultural run-off of fertilizers for the realistic case that effective internalization of (Formula presented.) externalities is lacking. The results contribute to a better understanding of the social costs of ocean acidification in coastal economies when there is interaction with other environmental stressors. Recommendations for Resource Managers: Marginal environmental damages from (Formula presented.) emissions should be internalized by a tax on (Formula presented.) emissions that is high enough to not only reflect marginal damages from temperature increases, but also marginal damages from ocean acidification and the interaction of both with regional sources of acidification like nutrient run-off from agriculture. In the absence of serious national policies that fully internalize externalities, a sufficiently high tax on regional nutrient run-off of fertilizers used in agricultural production can limit not only marginal environmental damages from nutrient run-off but also account for unregulated carbon emissions. Putting such regional policies in place that consider multiple important drivers of environmental change will be of particular importance for developing coastal economies that are likely to suffer the most from ocean acidification.

We develop a model of optimal carbon taxation and redistribution taking into account horizontal equity concerns by considering heterogeneous energy efficiencies. By deriving first- and second-best rules for policy instruments including carbon taxes, transfers and energy subsidies, we then investigate analytically how horizontal equity is considered in the social welfare maximizing tax structure. We calibrate the model to German household data and a 30 percent emission reduction goal. Our results show that energy-intensive households should receive more redistributive resources than energy-efficient households if and only if social inequality aversion is sufficiently high. We further find that redistribution of carbon tax revenue via household-specific transfers is the first-best policy. Equal per-capita transfers do not suffer from informational problems, but increase mitigation costs by around 15 percent compared to the first- best for unity inequality aversion. Adding renewable energy subsidies or non-linear energy subsidies, reduces mitigation costs further without relying on observability of households’ energy efficiency., CEPA Discussion Papers; 28

We study how the scarcity of non-market goods, such as environmental amenities, affects the economic appraisal of climate policy. To this end, we perform a comprehensive analysis of the change in relative prices of non-market goods in the widespread climate-economy model DICE. We show that DICE already contains relative prices implicitly and that the impact of the scarcity of non-market goods on climate policy evaluation is therefore more pervasive than previously suggested. We calibrate DICE based on empirical evidence and propose a plausible range for relative price changes. The uncertainty is substantial, with relative price changes ranging from 1.3 to 9.6 percent in 2020. For our central calibration, the relative price change amounts to 4.4 percent in 2020. Neglecting relative prices leads to an underestimation of the social cost of carbon in 2020 of more than 40 percent. Accounting for these changes is equivalent to a decrease in pure time preference by more than a half percentage point. Our findings support initiatives to consider relative prices in governmental project appraisal and offer guidance for the evaluation of climate policy.

This doctoral thesis addresses central aspects of climate change economics including economic damages from climate change, discounting and intergenerational equity as well as sustainability in the light of increasing scarcity of non-market goods. Chapter 2 studies how the optimal global effort to mitigate carbon dioxide depends on conceptions of intergenerational equity by avoiding explicit discounting choices, but instead directly specifying alternative intertemporal distributions of well-being. The advantage of this approach is that it becomes very clear that the social cost of carbon is largely determined by normative conceptions of intergenerational distributive justice. Chapter 3 is concerned with the increasing scarcity of non-market goods due to climate change. It provides a comprehensive analysis of the change in the relative price of non-market goods in terms of market goods, its determinants and its impact on climate policy evaluation. For the central calibration neglecting relative price changes would lead to a considerable underestimation of the social cost of carbon of almost 50 percent for the current generation. The changing relative price of non-market goods in terms of market goods is of considerable magnitude compared to established determinants of economic evaluation. Chapter 4 assesses how economic damages from climate change can be mitigated when global warming interacts with other global and local environmental change within a national economy. It describes a developing economy that depends on agriculture and fisheries to study optimal and second-best environmental policy in the face of interacting external effects of ocean acidification, global warming and eutrophication. The last chapter of my dissertation reveals that although climate change is a global phenomenon and only a global solution can tackle it entirely, it can be vital to design national policy instruments that capture regional distinctiveness of environmental change under increasing carbon dioxide levels.