Climate Tipping Points and Solar Geoengineering

Heutel, Garth; Moreno‐Cruz, Juan; Shayegh, Soheil

doi:10.3386/w21589

Cited by 19 publications

(24 citation statements)

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“… See Matthews et al (2009,Knutti (2013),Knutti and Rogelj (2015),MacDougall et al (2017).16 See alsoNaevdal and Oppenheimer (2007),Lemoine and Rudik (2015) andHeutel et al (2016).17 Bansal et al (2016) also use a similar linear relationship for the intensity of the Poisson shock, which however remains deterministic.…”

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confidence: 99%

Pricing Climate Change Risks: CAPM with Rare Disasters and Stochastic Probabilities

Karydas

Xepapadeas

2018

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. AbstractThere are concerns that climate-related physical and political risks are not yet properly reflected in asset prices. To address these concerns, we develop a dynamic asset pricing framework with rare disasters related to climate change. The novelty of this paper lies in linking carbon emissions and portfolio composition with the stochasticallyvarying probability of these events. Using theory and simulations we study the implications of the imminent threat of climate change on different market measures and on the participation of carbon-intensive assets in the aggregate portfolio, as well as the conditions that lead to these assets becoming stranded. Our result suggest that climate change implies a positive and increasing risk premium, with the overall equity premium depending on the volatility of the stochastic process that governs climate change risk. Transition risks lower substantially the participation of carbon intensive assets in the market portfolio, which should be fully de-carbonized by the end of the century for the worst IPCC emissions scenario.

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confidence: 99%

Pricing Climate Change Risks: CAPM with Rare Disasters and Stochastic Probabilities

Karydas

Xepapadeas

2018

SSRN Journal

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“…Burke and Emerick (2016) exploit large variation in recent temperatures and precipitation trends to identify adaptation to climate change in US agriculture, and find that longer-run adaptations appear to have mitigated less than half-and more likely none-of the large negative short-run impacts of extreme heat on productivity. Heutel, Moreno-Cruz, andShayegh (2016, 2018) and Keith, Wagner, and Zabel (2017) Cronin, Fullerton, and Sexton (2019) study redistributions from a carbon tax. Fried (2018) finds that a carbon tax induces large changes in innovation, and the innovation response increases the effectiveness of the policy at reducing emissions.…”

Section: Model Uncertainty and Scenario Uncertaintymentioning

confidence: 99%

The Role of Uncertainty and Risk in Climate Change Economics

Chari¹

2018

Preprint

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Integrated Assessment Models (IAMs) of the climate and economy aim to analyze the impact and efficacy of policies that aim to control climate change, such as carbon taxes and subsidies. A major characteristic of IAMs is that their geophysical sector determines the mean surface temperature increase over the preindustrial level, which in turn determines the damage function. Most of the existing IAMs are perfect-foresight forward-looking models, assuming that we know all of the future information. However, there are significant uncertainties in the climate and economic system, including parameter uncertainty, model uncertainty, climate tipping risks, economic risks, and ambiguity. For example, climate sensitivity, a well-known parameter that measures how much the equilibrium temperature will change if the atmospheric carbon concentration doubles, can range from one to ten in the literature. Climate damages are also uncertain: some researchers assume that climate damages are proportional to instantaneous output, while others assume that climate damages have a more persistent impact on economic growth. The spatial distribution of climate damages is also uncertain.Climate tipping risks represent (nearly) irreversible climate events that may lead to significant changes in the climate system, such as the Greenland ice sheet collapse, while the conditions, probability of tipping, duration, and associated damage are also uncertain. Technological progress in carbon capture and storage, adaptation, renewable energy, and energy efficiency are uncertain too. Future international cooperation and implementation of international agreements in controlling climate change may vary over time, possibly due to economic risks, natural disasters, or social conflict. In the face of these uncertainties, policymakers have to provide a decision that considers important factors such as risk aversion, inequality aversion, and sustainability of the economy and ecosystem. Solving this problem may require richer and more realistic models than standard IAMs, and advanced computational methods. The recent literature has shown that these uncertainties can be incorporated into IAMs and may change optimal climate policies significantly.(2017) argue that policymakers need a numerical value for the social cost of carbon (SCC) for policy evaluation and implementation, and producing a credible numerical value requires sophisticated computer models, i.e. IAMs. Brock and Hansen (2018) stress: "Defenses for policies that combat climate damage externalities induced by human activity need not require precise knowledge of the magnitude or timing of the potential adverse impacts. ...Waiting for precise knowledge of the eventual consequences of continued or expanded human induced CO2 emissions could make mitigation or adaptation extremely costly." Goulder (2020) calls for urgent and stronger policy action to address global climate change. This review focuses on recent work about the role of uncertainty in controlling climate change. Here I use a broad perspective...

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“…Second, the long-lived and strong path dependence and carbon lock-in in the energy market leads to imperfect substitution between the incumbent dirty assets and competing clean ones (Unruh, 2000(Unruh, , 2002Fouquet, 2016). 1 Third, a growing attention has been paid to building clean capital assets such as carbon capture and storage (CSS) facilities and solar geoengineering technologies that can break the link between dirty capital (fossil fuel power plants) and pollution damages (climate change) (e.g., Anderson and Newell, 2004;van der Zwaan and Gerlagh, 2009;Herzog, 2011;Moreno-Cruz, 2015Moreno-Cruz and Smulders, 2017;Heutel et al, 2016Heutel et al, , 2018. 2 In this sense, dirty and clean capital can coexist and serve as imperfect substitutes or gross complements.…”

Section: Introductionmentioning

confidence: 99%

Capital Accumulation, Green Paradox, and Stranded Assets: An Endogenous Growth Perspective

Jin¹,

Zhang

2019

SSRN Journal

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Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence.

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Climate Tipping Points and Solar Geoengineering

Cited by 19 publications

References 20 publications

Pricing Climate Change Risks: CAPM with Rare Disasters and Stochastic Probabilities

Pricing Climate Change Risks: CAPM with Rare Disasters and Stochastic Probabilities

The Role of Uncertainty and Risk in Climate Change Economics

Capital Accumulation, Green Paradox, and Stranded Assets: An Endogenous Growth Perspective

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