The Optimal Carbon Tax with a Tipping Climate and Peak Temperature

This paper describes an integrated assessment model with an unknown temperature
threshold where severe and irreversible climate impacts, called a tipping point, occurs.
The possibility of tipping leads to the following linked outcomes: a prolonged period of
peak temperature; a rebound in emissions prior to and during peak temperature; and a
fall in the optimal carbon tax as a ratio of output prior to and during peak temperature.
Although tipping can occur in any period where temperature rises to a new maximum,
the optimal carbon price can be calculated from future temperature outcomes conditional
on no tipping. Learning that tipping has not occurred lowers the tax.