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The climate beta

Dietz, Simon, Gollier, Christian and Kessler, Louise (2015) The climate beta. TSE Working Paper, n. 15-608

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Official URL: http://tse-fr.eu/pub/29904

Abstract

Mitigation reduces the expected future damages from climate change,flbut how does it affect the aggregate risk borne by future generations?flThis raises the question of the ‘climate beta’, i.e., the elasticity of climatefldamages with respect to a change in aggregate consumption. Inflthis paper we show that the climate beta is positive if the main sourceflof uncertainty is exogenous, emissions-neutral technological progress,flimplying that mitigation has no hedging value. But these results areflreversed if the main source of uncertainty is related to the carbonclimate-flresponse and the damage intensity of warming. We then showflthat in the DICE integrated assessment model the climate beta is positivefland close to unity. In estimating the social cost of carbon, thisflwould justify using a relatively high rate to discount expected climatefldamages. However, the stream of undiscounted expected climate damagesflis also increasing in the climate beta. We show that this dominatesflthe discounting effect, so that the social cost of carbon is in fact largerflthan when discounting expected damages at the risk-free rate.

Item Type: Monograph (Working Paper)
Language: English
Date: November 2015
Uncontrolled Keywords: beta, climate change, discounting, integrated assessment, flmitigation, risk, social cost of carbon
JEL codes: Q54 - Climate; Natural Disasters
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse Capitole
Site: UT1
Date Deposited: 20 Apr 2016 08:55
Last Modified: 21 Mar 2018 13:38
OAI ID: oai:tse-fr.eu:29904
URI: http://publications.ut-capitole.fr/id/eprint/18720

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