The macroeconomics of climate change Starting points, tentative results, and a way forward by John Hassler, Per Krusell, and Conny Olovsson published by PIIE (4/2024)
This paper provides scientific starting points for climate-economy modeling. The sensitivity of climate change to emissions of greenhouse gases is uncertain. The same is true about the long-run economic consequences of climate change. Therefore, we argue that traditional cost-benefit analyses including calculations of optimal carbon taxes are, and will remain, unconvincing. Climate-economic models are nevertheless useful for finding effective climate policies that are robust to different assumptions about these uncertainties. This paper outlines such a model. A key result is that a transition to climate neutrality can be implemented at an acceptably low cost. We discuss the policies required for this transition, compare climate policies in the European Union and the United States, and provide suggestions for future research.
