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  5. ACE—Analytic Climate Economy

ACE—Analytic Climate Economy

Abstract

The paper discusses optimal carbon taxation in an analytic quantitative integrated assessment model (IAM). The model links IAM components, parametric assumptions, and calibration approaches directly to their policy impacts. The paper discusses the distinct tax impact of temperature dynamics as opposed to previously analytically modeled carbon dynamics. Novel to analytic IAMs are a general economy, energy sectors including capital, varying degrees of substitutability across energy sources, an approximation of capital persistence, objective functions that include CES preferences and population weighting, and an explicit model of the greenhouse effect and ocean-atmosphere temperature dynamics. ACE opens the door to tractable forward-looking stochastic modeling and dynamic strategic interactions in complex IAMs, explored in accompanying work. The paper enables economists inside and outside of the field to develop better-informed opinions about the social cost of carbon dioxide emissions.

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