Global Demographic Change and Climate Policies

Abstract

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. Between 1950 and 2017, world average life expectancy increased from below-50 to above-70, while the fertility rate dropped from 5 to about 2.5. We develop and calibrate an analytic climate-economy model with overlapping generations to study the effect of such demographic change on capital markets and optimal climate policies. Our model replicates findings from the OLG-demography literature, such as a rise in households' savings, and a declining rate of return to capital. We also find that demographic change raises the social cost of carbon, at 2020, from 28 euro/tCO 2 in a model that abstracts from demography, to 94 euro/tCO 2 in our calibrated model. JEL-Codes: H230, J110, Q540, Q580. Terms of use: Documents in

The Rising Cost of Climate Change: Evidence from the Bond Market

“…The increases in our SCC estimates are broadly consistent with the theoretical results ofGerlagh et al (2017) who provide a model in which the discount factor reacts to ongoing demographic trends.…”

“…Carvalho et al (2016) andLunsford and West (2019) investigate the empirical link between demographic trends and the equilibrium real interest rate Gerlagh et al (2017). use a calibrated, analytical model with overlapping generations to show theoretically that changes in population dynamics can have important effects on capital returns and optimal climate policies.…”

Does idiosyncratic risk matter for climate policy?

“…As an available instrument, the government can levy an excise tax on energy use to internalize the associated future marginal economic costs into firm's decisions. Since the government is constrained in the way it distributes resources across generations, we also assume that all tax revenues coming from carbon taxation are rebated to households as lump-sum transfers period-by-period as in Gerlagh et al (2017). 12 Here, since older people also supply labor, the revenues are allocated bearing in mind age-specific productivity levels, that is, transfers for the young and old people are constant fractions of total environmental revenues, formally,…”

“…Gerlagh and Liski (2018b) also derive a simple formula bearing in mind time-inconsistency issues in social preferences. Gerlagh et al (2017) present an analytical formula for understanding the implications of demographic change on climate policy. We add to those an analytical simple formula in a model that features idiosyncratic labor income risk and capital income taxation.…”

The Rising Cost of Climate Change: Evidence from the Bond Market

“…Examinations of the longer-run historical record generally find that demographic variables have the most reliable connection with real interest rates (Lunsford and West, 2019). Not surprisingly then, the link between the changing demographic structure of global economies and real interest rates has been the focus of recent theoretical and empirical work (e.g., Carvalho et al, 2016, andGerlagh et al, 2017). Importantly, the various economic forces that have lowered the equilibrium real rate appear likely to persist.…”