@article{6da1804d43da4102b2aa6b17cb469254,
title = "Carbon Dioxide as a Risky Asset",
abstract = "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{\textquoteright}s sixth assessment report. We show that risk associated with high damages in the long term leads to stringent mitigation of carbon dioxide emissions in the near term, and find that this approach provides economic support for stringent warming targets across a variety of specifications. Our results provide insight into how a systematic incorporation of climate-related risk influences optimal emissions abatement pathways.",
keywords = "Asset pricing, Climate policy, Climate risk, Cost of carbon",
author = "Bauer, {Adam Michael} and Cristian Proistosescu and Gernot Wagner",
note = "The authors thank Simon Dietz, Romain Fillon, Bob Kopp, Geoffrey Heal, Glenn Hubbard, Bob Litterman, Bruce McCarl, James Rising, Chris Smith, Thomas Stoerk, Andrew Wilson, three anonymous reviewers, and seminar audiences at Columbia University, the Center for Social and Environmental Futures at the University of Colorado Boulder, the 2022 fall meeting of the American Geophysical Union, and the 2023 summer conferences of the Association of Environmental and Resource Economists and the European Association of Environmental and Resource Economists for providing useful feedback on this work. The authors thank Alaa Al Khourdajie for providing the data from AR6 WGIII\u2019s cost of mitigation figure, W. Matthew Alampay Davis and Steve Rose for helpful discussions of climate damage functions, David C. Lafferty for his contributions to Fig. , and Jaydeep Pillai for testing the public release version of the code. AMB thanks Columbia Business School for their hospitality while this work was being completed, and acknowledges support from the Gies College of Business Office of Risk Management and Insurance at the University of Illinois Urbana-Champaign, Columbia Business School, and a National Science Foundation Graduate Research Fellowship grant No. DGE 21-46756. CP was supported by the Gies College of Business Office of Risk Management and Insurance Research at the University of Illinois Urbana-Champaign. Computations were performed on the Keeling computing cluster, a computing resource operated by the School of Earth, Society and the Environment (SESE) at the University of Illinois Urbana-Champaign. The authors thank Simon Dietz, Romain Fillon, Bob Kopp, Geoffrey Heal, Glenn Hubbard, Bob Litterman, Bruce McCarl, James Rising, Chris Smith, Thomas Stoerk, Andrew Wilson, three anonymous reviewers, and seminar audiences at Columbia University, the Center for Social and Environmental Futures at the University of Colorado Boulder, the 2022 fall meeting of the American Geophysical Union, and the 2023 summer conferences of the Association of Environmental and Resource Economists and the European Association of Environmental and Resource Economists for providing useful feedback on this work. The authors thank Alaa Al Khourdajie for providing the data from AR6 WGIII\u2019s cost of mitigation figure, W. Matthew Alampay Davis and Steve Rose for helpful discussions of climate damage functions, David C. Lafferty for his contributions to Fig. 3, and Jaydeep Pillai for testing the public release version of the code. AMB thanks Columbia Business School for their hospitality while this work was being completed, and acknowledges support from the Gies College of Business Office of Risk Management and Insurance at the University of Illinois Urbana-Champaign, Columbia Business School, and a National Science Foundation Graduate Research Fellowship grant No. DGE 21-46756. CP was supported by the Gies College of Business Office of Risk Management and Insurance Research at the University of Illinois Urbana-Champaign. Computations were performed on the Keeling computing cluster, a computing resource operated by the School of Earth, Society and the Environment (SESE) at the University of Illinois Urbana-Champaign.",
year = "2024",
month = may,
doi = "10.1007/s10584-024-03724-3",
language = "English (US)",
volume = "177",
journal = "Climatic Change",
issn = "0165-0009",
publisher = "Springer Science and Business Media B.V.",
number = "5",
}