Policy ramp versus big bang: optimal global mitigation policy ESP 165: Climate Policy Discounting – Ramsey equation Discounting – Ramsey equation To set the discount rate Stern was prescriptive, Nordhaus descriptive

Policy ramp versus big bang: optimal global mitigation policy ESP 165: Climate Policy Discounting – Ramsey equation Discounting – Ramsey equation To set the discount rate Stern was prescriptive, Nordhaus descriptive www.phwiki.com

Policy ramp versus big bang: optimal global mitigation policy ESP 165: Climate Policy Discounting – Ramsey equation Discounting – Ramsey equation To set the discount rate Stern was prescriptive, Nordhaus descriptive

Sykes, Ricky, Music Director/Program Director has reference to this Academic Journal, PHwiki organized this Journal Policy ramp versus big bang: optimal global mitigation policy ESP 165: Climate Policy Michael Springborn Department of Environmental Science & Policy UC Davis In 2006 the UK released an “Economics of Climate Change” report by Nicholas Stern that sparked debate by calling as long as much more aggressive action than others AKA: the Stern Review (SR) Sir Nicholas Stern (Nobel Laureate) Adviser to the UK government on the Economics of Climate Change in addition to Development 2005-2007 Chair of the Grantham Research Institute on Climate Change in addition to the Environment at the London School of Economics (LSE) since 2008 The SR used estimates of damage from climate change that were much larger than previous studies Tol in addition to Yohe (2006)

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The SR used a much lower discount rate than other mainstream economists. William Nordhaus is a distinguished economist with significant leadership experience in academia in addition to public policy Faculty member of Yale University since 1967 Nordhaus, W. (2007). “Critical assumptions in the Stern Review on climate change.” Science 317, 201–202. Nordhaus, W. (2010). Economic aspects of global warming in a post-Copenhagen environment. Proceedings of the National Academy of Sciences 107(26), 11721-11726. Nordhaus expresses the stringency of his policy ramp recommendation vs. the “big bang” by estimating the carbon tax needed to get the targeted mitigation. Nordhaus (2007) Nordhaus policy ramp/DICE baseline “big bang”/Stern assumptions

Nordhaus (2008, p. 174): To set the discount rate Stern was prescriptive (normative), Nordhaus was descriptive (positive). Specifying a social discount rate as long as long-run climate policy analysis often employs the Ramsey framework Ramsey (1928) optimal growth model: Economy operates as if a “representative agent” selects consumption in addition to savings to max PV of the stream of utility from consumption over time. One implication of the Ramsey model is the following equation: = + g : discount rate on consumption, c “long-run real return on capital” (in equilibrium) : discount rate on utility, u(c) “pure rate of time preference”, “utility rate of discount” : elasticity of marginal utility w.r.t. consumption (how curved is the utility function) also an indicator of intergenerational inequality aversion g: average growth rate of consumption (per capita) Ramsey optimal growth model: central framework as long as thinking about dynamic investment decisions organizing principle as long as setting long-run discount rates The Ramsey equation holds in the welfare optimum r = + g : How quickly marginal utility falls as consumption rises (elasticity of marginal utility of consumption) Discounting – Ramsey equation consumption disc. rate utility discount rate utility function shape param. growth rate of consumption high low c: consumption Utility(c) ct ct+1

Discounting – Ramsey equation : Also indicates: aversion to consumption inequality among generations. Lower (Stern) MU changes relatively little over consumption pays less attention to whether future is richer/poorer cares less about intergenerational inequality Higher (Nordhaus) MU changes more rapidly more attention to income (consumption) changes cares more about intergen. inequality. To set the discount rate Stern was prescriptive, Nordhaus descriptive SR approach—prescriptive/normative r = + g = 0.1% + 11.3% = 1.4%. : favors a “low” social rate of time preference = 0.1% Argument: the only ethical reason to discount future generations is that they might not be there at all (e.g. cataclysmic comet) [consistent with Frank Ramsey] Prob. of extinction: 0.1%/year g: growth rate of consumption ~ 1.3%; : elasticity of marginal utility of consumption = 1 (intergenerational) inequality aversion: lower Nordhaus approach-descriptive/positive = 1.5% (assumed, Nordhaus 2008, p. 51) = 2 (calibrated, given r, in addition to g) (intergenerational) inequality aversion: higher r = 6.5% in 2015, falls over time to 4.5% in 2095 as g falls (in DICE 2007, Arrow et al. 2012) (average over the next century (Nordhaus, 2008, 10)): r = 0.04 5.5% over first 50 years (61). Economic growth in addition to population growth will slow, rate will fall over time. The big bang approach is >10 times more stringent than Nordhaus’ policy ramp in the short term. Nordhaus (2007) Nordhaus policy ramp/DICE baseline “big bang”/Stern assumptions

Stern’s analysis is substantially driven by damages from the distant future Nordhaus (2008): “ if the Stern Review’s methodology is used, more than half of the estimated damages “now in addition to as long as ever” occur after 2800.” (1-D(At))FE(Kt): Production Kt: technological capital stock Consumption: Ct U(Ct): utility R(At): natural GHG cycling Kt+1 = Kt + kt At+1 = At + a(Mt)Ft – R(At) +R(At) GHG emissions kt: Investment t: time At: GHG stock Mt+1 = Mt + mt mitigation capital mt: invest in mitig. cap. The economic logic of the policy ramp is that some investment in mitigation capital is good but only up to a point- as long as going investment in technological ( in addition to other kinds of) capital is costly Since “capital is productive in addition to damages are far in the future the highest-return investments today are primarily in tangible, technological, in addition to human capital.” (Nordhaus, 2007) et: educ./invest in human. cap. Et+1 = Et + et While CO2 intensity (tons/$GDP) has fallen, growth in population & GDP have led to rising emissions. (Nordhaus, 2012)

Sykes, Ricky WEUP-AM Music Director/Program Director www.phwiki.com

Sykes, Ricky Music Director/Program Director

Sykes, Ricky is from United States and they belong to WEUP-AM and they are from  Huntsville, United States got related to this Particular Journal. and Sykes, Ricky deal with the subjects like Music Programming

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