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Tipping Points and Ambiguity in the Economics of Climate Change
RFF Academic Seminar

Presenter
Derek Lemoine, Assistant Professor of Economics, University of Arizona

Abstract
We model optimal policy when the probability of a tipping point, the welfare change due to a tipping point, and knowledge about a tipping point's trigger all depend on the chosen policy path. Analytic results show that optimal policy primarily responds to the total welfare change incurred by a tipping point occurring and its ability to affect a tipping point's probability. Simulations with a numerical climate-economy model show that tipping points increase the optimal near-term carbon tax by up to 50% and that the resulting policy path lowers peak warming by up to 0.5 degrees C. Different types of possible tipping points can have qualitatively different effects on policy, demonstrating the importance of explicitly modeling the effects of tipping points on system dynamics. Analytically, aversion to ambiguity in the threshold's distribution can amplify or dampen the effect of tipping points on optimal policy, but in our numerical model, it always slightly increases the near-term optimal carbon tax.

Date
Tuesday, November 22, 2011
12:00 - 1:30 p.m.

Lunch will be provided.

Location
7th Floor Conference Center
1616 P St. NW
Washington, D.C. 20036

All seminars will be in the 7th Floor Conference Room at RFF, 1616 P Street NW. Attendance is open, but involves pre-registration no later than two days prior to the event. For questions and to register to an event, please contact Charlotte Pineda at Pineda@rff.org (tel. 202-328-5021). Updates to our academic seminars schedule will be posted at www.rff.org/academicseminarseries.

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