All regions of the world do not—and will not—experience the effects of CO2 emissions in the same way. Some will suffer greatly from climate change, while others may even benefit. These heterogeneous effects mean that different countries will have differing incentives to abide by the Paris Agreement, which aims to limit global warming below 2°C relative to pre-Industrial levels.

In a study by UChicago economist Esteban Rossi-Hansberg, and his co-author José-Luis Cruz of Princeton University, the authors assess the local social cost of carbon and how that cost aligns with the carbon reduction pledges countries made under the Paris Agreement. They find that while the distribution of carbon reduction pledges in the Paris Agreement is roughly in line with the local social cost of carbon, the pledges have only a very small impact on reducing emissions and limiting warming. Under business-as-usual, the world would reach the 2°C limit in 2043. The Paris pledges delay crossing that threshold by only three years.

To achieve the Agreement’s goal to limit warming below 2°C over the current century would require setting at least a $200 per ton carbon tax throughout the world.

“Setting such a high tax on carbon is probably unrealistic, especially in developing countries,” says Rossi-Hansberg, the Glen A. Lloyd Distinguished Service Professor in Economics. “To make achieving the 2°C target more palatable to countries, we must develop technologies and install capital that make the substitution between fossil fuels for clean energy sources less costly.”

 

 

Areas of Focus: Climate Change
Definition
Climate Change
Climate change is an urgent global challenge. EPIC research is helping to assess its impacts, quantify its costs, and identify an efficient set of policies to reduce emissions and adapt...
Climate Economics
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Climate Economics
Climate change will affect every sector of the economy, both locally and globally. EPIC research is quantifying these effects to help guide policymakers, businesses, and individuals working to mitigate and...
Climate Law & Policy
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Climate Law & Policy
As countries around the world implement policies to confront climate change, EPIC research is calculating which policies will have the most impact for the least cost.
Social Cost of Carbon
Definition
Social Cost of Carbon
The social cost of carbon is an essential tool for incorporating the cost of climate change into policy-making, corporate planning and investment decisionmaking in the United States and around the...