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Abstract:This paper concerns optimal emissions of greenhouse gases when catastrophic consequences are possible. A numerical model is presented which takes into account both continuous climate-feedback damages as well as the possibility of a catastrophic outcome. The uncertainty in the model concerns whether or not a future catastrophe will occur. However, the welfare losses imposed by such an outcome are assumed known to the decision-maker. An important result is that the possibility of a climate catastrophe is a major argument for greenhouse gas abatement even in absence of continuous damage. Special attention is given to analyses on the probability of a catastrophe and the pure rate of time preferences, and the implicit values of these parameters are calculated if the Rio stabilisation target is assumed to be optimal. Finally, the expected value of perfect information about the probability of the arrival of a catastrophe is estimated.

Climate change, Environmental policy, Technological change, Research and development, H21, O30, Q42,

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Many countries are implementing or at least considering policies to counter increasingly certain negative impacts from climate change. A large amount of research has been devoted to the analysis of the costs of climate change and its mitigation, as well as to the design of policies, such as the international Kyoto Protocol, post-Kyoto negotiations, regional initiatives, and unilateral actions. Although most studies on climate change policies in economics have focused on efficiency aspects, there is a growing literature on equity and justice.Climate change policy has important dimensions of distributive justice, both within and across generations, but in this paper we survey only studies on the intragenerational aspect. We cover several domains including the international, regional, national, sectoral and inter-personal, and examine aspects such as the distribution of burdens from climate change, climate change policy negotiations in general, implementation of climate agreements using tradable emission permits, and the uncertainty of alternatives to emission reductions.

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One characteristic of tradeable emission permits is that efficiency and justice considerations can be separated. While Pareto optimality is an accepted efficiency principle, there is not a consensus on a 'best' equity principle. In this article, conventional justice principles are used to evaluate alternative allocation rules for tradeable CO 2 permits, and a distribution proportional to population is recommended. Arguments against the population rule are discussed, especially those pertaining to political feasibility. While justice and political feasibility may indeed contrast, it still may be possible to emphasise the population rule in the future.