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Carbon Dioxide as a Risky Asset

Carbon Dioxide as a Risky Asset

Full Title: Carbon Dioxide as a Risky Asset
Author(s): Adam Michael Bauer, Cristian Proistosescu, and Gernot Wagner
Publisher(s): CESifo
Publication Date: April 21, 2023
Full Text: Download Resource
Description (excerpt):

We develop a financial-economic model for carbon pricing with an explicit representation of decision making under risk and uncertainty that is consistent with the Intergovernmental Panel on Climate Change’s sixth assessment report. We find that this approach provides economic support for the warming targets in the Paris Agreement across a variety of specifications. We show that risk associated with high damages in the long term leads to stringent mitigation of carbon dioxide emissions in the near term. Our results provide insight into how a systematic incorporation of climate-related risk influences `optimal’ emissions abatement pathways.

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