Noah Kaufman commenting on a new piece of work that gives a more realistic way to calculate the price of carbon.
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William Nordhaus was awarded a Nobel Prize for his path-breaking work on climate change, and in particular, developing an analytical approach that highlights carbon pricing as a powerful tool to reduce emissions while constraining the costs of decarbonization.
The irony, however, was that the approach that Nordhaus pioneered is not well suited for the pursuit of net zero goals. He recommends setting carbon prices using the social cost of carbon, which is an estimate of the damages caused by an additional ton of carbon dioxide emissions. And the scenario Nordhaus highlighted in his Nobel Lecture showed an “optimal” emissions pathway to over 4 degrees warming in the 2100s, causing many to wonder: is carbon pricing the wrong tool for the job?
In a new study in Nature Climate Change, we reconcile this tension with an approach for setting carbon prices that is consistent with goals of both climate experts (i.e. an equitable pathway to net zero) and economists (i.e. an efficient policy response). The Near Term to Net Zero (NT2NZ) approach entails selecting an emissions pathway to a net zero target that balances the risks of even-higher temperature changes with the additional costs of decarbonizing faster. The next step is to estimate the carbon prices needed, alongside a broad climate policy strategy, for consistency with the desired emissions pathway.
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