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Carbon Coin: Exploring the Macroeconomic Implications of a Novel Climate Currency

af Petersens, Fanny LU (2024) NEKP01 20241
Department of Economics
Abstract
Climate change poses a significant threat to global stability, with rising temperatures leading to severe environmental and economic impacts. In response, innovative policy mechanisms such as the Global Carbon Reward (GCR) have been designed to enhance the effectiveness of carbon pricing strategies. The foundational aspect of the GCR is a carbon reward, which acts as a financial incentive distributed for carbon-mitigating activities. This study employs the DICE model to evaluate the GCR and assesses its impacts on emissions, damage and abatement costs, and welfare under various carbon pricing scenarios. By comparing the Social Cost of Carbon (SCC) and Risk Cost of Carbon (RCC) models against a baseline of minimal carbon pricing, the... (More)
Climate change poses a significant threat to global stability, with rising temperatures leading to severe environmental and economic impacts. In response, innovative policy mechanisms such as the Global Carbon Reward (GCR) have been designed to enhance the effectiveness of carbon pricing strategies. The foundational aspect of the GCR is a carbon reward, which acts as a financial incentive distributed for carbon-mitigating activities. This study employs the DICE model to evaluate the GCR and assesses its impacts on emissions, damage and abatement costs, and welfare under various carbon pricing scenarios. By comparing the Social Cost of Carbon (SCC) and Risk Cost of Carbon (RCC) models against a baseline of minimal carbon pricing, the analysis reveals that both SCC and RCC effectively reduce emissions compared to the baseline, with the RCC scenario demonstrating a steeper decline in emissions and net costs over time. The RCC's risk-adjusted pricing also proves more cost-effective in mitigating long-term economic burdens. Despite higher initial costs, carbon pricing scenarios offer potential for sustainable economic trajectories and increased per-capita consumption in the long run. This analysis highlights the need for practical application of these models in real-world settings and suggests further exploration of integrating carbon pricing with existing climate policies and evaluating differentiated investment strategies to improve environmental and economic outcomes. (Less)
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author
af Petersens, Fanny LU
supervisor
organization
course
NEKP01 20241
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Global Carbon Reward, DICE, GCR, Carbon Reward, Risk Cost of Carbon
language
English
id
9173459
date added to LUP
2024-10-01 13:17:48
date last changed
2024-10-01 13:17:48
@misc{9173459,
  abstract     = {{Climate change poses a significant threat to global stability, with rising temperatures leading to severe environmental and economic impacts. In response, innovative policy mechanisms such as the Global Carbon Reward (GCR) have been designed to enhance the effectiveness of carbon pricing strategies. The foundational aspect of the GCR is a carbon reward, which acts as a financial incentive distributed for carbon-mitigating activities. This study employs the DICE model to evaluate the GCR and assesses its impacts on emissions, damage and abatement costs, and welfare under various carbon pricing scenarios. By comparing the Social Cost of Carbon (SCC) and Risk Cost of Carbon (RCC) models against a baseline of minimal carbon pricing, the analysis reveals that both SCC and RCC effectively reduce emissions compared to the baseline, with the RCC scenario demonstrating a steeper decline in emissions and net costs over time. The RCC's risk-adjusted pricing also proves more cost-effective in mitigating long-term economic burdens. Despite higher initial costs, carbon pricing scenarios offer potential for sustainable economic trajectories and increased per-capita consumption in the long run. This analysis highlights the need for practical application of these models in real-world settings and suggests further exploration of integrating carbon pricing with existing climate policies and evaluating differentiated investment strategies to improve environmental and economic outcomes.}},
  author       = {{af Petersens, Fanny}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Carbon Coin: Exploring the Macroeconomic Implications of a Novel Climate Currency}},
  year         = {{2024}},
}