Declining CO₂ price paths.

ABSTRACT: Pricing greenhouse-gas (GHG) emissions involves making trade-offs between consumption today and unknown damages in the (distant) future. While decision making under risk and uncertainty is the forte of financial economics, important insights from pricing financial assets do not typically inform standard climate-economy models. Here, we introduce EZ-Climate, a simple recursive dynamic asset pricing model that allows for a calibration of the carbon dioxide ([Formula: see text]) price path based on probabilistic assumptions around climate damages. Atmospheric [Formula: see text] is the "asset" with a negative expected return. The economic model focuses on society's willingness to substitute consumption across time and across uncertain states of nature, enabled by an Epstein-Zin (EZ) specifica

SUBMITTER: Daniel KD 

PROVIDER: S-EPMC6800385 | biostudies-literature | 2019 Oct

REPOSITORIES: biostudies-literature