<i>Presidential Address 2020</i> Suboptimal Climate Policy

Abstract There is a scientific consensus that human activities, in the form of emissions carbon dioxide into atmosphere, cause global warming. These mostly occur marketplace, is, they are undertaken by private individuals and firms. Governments seeking to curb thus need design policies influence market behavior direction their goals. Economists refer Pigou taxation as “the” solution here, since case warming can be seen pure (negative) externality. We agree. However, given reluctance policymakers agree with us, there an urgent consider, compare, suboptimal policies. In this paper, we look at one such instance: setting tax on wrong level. How costly different errors? Since much uncertainty about how climate change will be, damaging it when occurs, ex-post errors most likely made. compare kinds qualitatively quantitatively find policy based over-pessimistic views less than those made over-optimism. This finding inherent feature standard integrated assessment models, even though these models do not tipping points or strong linearities.