The climate beta

Dietz, Simon, Gollier, Christian and Kessler, Louise (2018) The climate beta. Journal of Environmental Economics and Management, 87. pp. 258-274.

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Official URL: http://tse-fr.eu/pub/32262

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: Article
Language: English
Date: January 2018
Refereed: Yes
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)
Site: UT1
Date Deposited: 17 May 2018 15:16
Last Modified: 15 Jul 2019 11:26
OAI ID: oai:tse-fr.eu:32262
URI: http://publications.ut-capitole.fr/id/eprint/25779

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