Tipping, the optimal carbon price and weighing cows and coal

Crawford School of Public Policy | Centre for Applied Macroeconomic Analysis

Event details


Date & time

Wednesday 15 May 2019


Seminar Room 2, Level 1, JG Crawford Building 132, Lennox Crossing, ANU


Tony Wiskich, PhD Student, CAMA


Rossana Pinto
61 2 61258108

This seminar will cover two papers. The first paper is on the optimal carbon tax with an endogenous chance of a tipping climate. The paper describes an integrated assessment model with an unknown climate tipping temperature threshold. Although tipping can occur in any period where temperature rises to a new maximum, the optimal carbon price can be calculated from temperature outcomes conditional on no tipping. The author finds that the endogenous hazard rate leads to a prolonged period of peak temperature, tied with a rebound in emissions as the tax ratio falls. Learning that tipping has not occured lowers the tax.

The second paper is on optimal taxes for methane and carbon from a tipping risk. According to the author, different optimal tax paths for short-lived methane and long-lived carbon arise in a cost benefit framework with an unknown climate tipping temperature threshold. Tax paths are compared with a cost-minimising approach where an upper temperature limit is set. In both approaches, the ratio of methane to carbon taxes converge to the same value by the end of the peak temperature stabilisation period. The author finds that a simple adjustment of GWP so that the time frame aligns with the expected end of peak temperature goes most of the way to replicating the optimal relative weights of carbon and methane under cost benefit.

Tony Wiskich is a PhD scholar at ANU and doctoral student associate for the Centre for Applied Macroeconomic Analysis. He worked as an economist in the public and private sectors for a decade. His research interests include: optimal carbon prices under uncertainty of climate tipping; a decreasing elasticity between clean and dirty inputs; productivity spillovers from the rise of China; and the consequences of diminishing comparative advantage between countries.

The CAMA Macroeconomics Brown Bag Seminars offer CAMA speakers, in particular PhD students, an opportunity to present their work in progress in front of their peers, and reputable visitors to showcase their work.

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