Harvard Paulson School
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Cambridge, MA 02138
Information about this author at RePEc
NBER Working Papers and Publications
|November 2016||Applying Asset Pricing Theory to Calibrate the Price of Climate Risk|
with Kent D. Daniel, Robert B. Litterman: w22795
Pricing greenhouse gas emissions is a risk management problem. It involves making trade-offs between consumption today and unknown and potentially catastrophic damages in the (distant) future. The optimal carbon price is based on society’s willingness to substitute consumption across time and across uncertain states of nature. A large body of work in macroeconomics and finance has attempted to infer societal preferences using the observed behavior of asset prices, and has concluded that the standard preference specifications are inconsistent with observed asset valuations. This literature has developed a richer set of preferences that are more consistent with asset price behavior.
In this paper, we explore the implications of these richer preference specifications for the Social Cost of C...
|January 2015||Climate Sensitivity Uncertainty: When is Good News Bad?|
with Mark C. Freeman, Richard J. Zeckhauser: w20900
Climate change is real and dangerous. Exactly how bad it will get, however, is uncertain. Uncertainty is particularly relevant for estimates of one of the key parameters: equilibrium climate sensitivity—how eventual temperatures will react as atmospheric carbon dioxide concentrations double. Despite significant advances in climate science and increased confidence in the accuracy of the range itself, the “likely” range has been 1.5-4.5°C for over three decades. In 2007, the Intergovernmental Panel on Climate Change (IPCC) narrowed it to 2-4.5°C, only to reverse its decision in 2013, reinstating the prior range. In addition, the 2013 IPCC report removed prior mention of 3°C as the “best estimate.”
We interpret the implications of the 2013 IPCC decision to lower the bottom of the range and...
Published: Mark C. Freeman & Gernot Wagner & Richard J. Zeckhauser, 2015. "Climate sensitivity uncertainty: when is good news bad?," Philosophical Transactions of the Royal Society A: Mathematical, Physical and Engineering Sciences, vol 373(2055).