The safe carbon budget

Abstract

Cumulative emissions drive peak global warming and determine the carbon budget needed to keep temperature below 2 or 1.5°C. This safe carbon budget is low if uncertainty about the transient climate response is high and risk tolerance (willingness to accept risk of overshooting the temperature target) is low. Together with energy costs, this budget determines the optimal carbon price and how quickly fossil fuel is abated and replaced by renewable energy. This price is the sum of the present discounted value of all future losses in aggregate production due to emitting one ton of carbon today plus the cost of peak warming that rises over time to reflect the increasing scarcity of carbon as temperature approaches its upper limit. If policy makers ignore production losses, the carbon price rises more rapidly. If they ignore the peak temperature constraint, the carbon price rises less rapidly. The alternative of adjusting damages upwards to factor in the peak warming constraint leads initially to a higher carbon price which rises less rapidly.

Natural Resource Economics, Planetary Boundaries and Strong Sustainability

“…Equally important is the removal of harmful subsidies that distort markets and foster excessive environmental degradation and resource use. Such price incentives are important to promoting innovations that reduce greenhouse gas (GHG) emissions, such as carbon capture and sequestration, hybrid vehicles, GHG abatement technologies, and switching to renewables [15]. Proper pricing could support the adoption of technologies that improve agricultural yields, foster sustainable management and generate zero net land degradation might reduce the pressure for cropland expansion and thus the demand for converting more natural forests [17].…”

“…For example, [14] develop a user cost model of one particular type of safe operating space-the 2 • C global carbon budget-to show how this scarcity value may be affected, and the remaining carbon budget preserved, under different policy scenarios. See also [15].…”

“…For example, the safe operating space for climate change might be the global carbon budget, which is the cumulative amount of anthropogenic CO 2 emissions that would limit global warming to less than 2 • C [7,14,15]. Innovations that reduce greenhouse gas (GHG) emissions, such as carbon capture and sequestration, hybrid vehicles, GHG abatement technologies, and switching to renewables, would lessen depletion of the remaining 2 • C global carbon budget.…”

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

“…Stranded Assets and Green Paradox. Studies on stranded assets find that stringent environmental regulations such as a tough carbon budget for the 2 • C global warming target lead to asset stranding for a substantial share of fossil resource reserves (e.g., Allen et al, 2009;McGlade and Ekins, 2015;Pfeiffer et al, 2016;van der Ploeg, 2018). Meanwhile, a strand of related literature is Green Paradox.…”

Recalculating the Social Cost of Carbon

“…The main source of uncertainty facing policy makers that wish to stick to the Paris agreement is the uncertainty about the transient response to cumulative emissions. This uncertainty significantly curbs the available carbon budget to keep temperature below the target, and more so if policy makers are willing to accept less risk than the two third chance of not hitting the Paris target mentioned by the IPCC [5]. The price of carbon that guarantees this probabilistic target is pinned down at the end by the cost of full decarbonization of the global economy and in the preceding period grows at a rate equal to the rate of interest.…”