The climate system and irreversible catastrophes

The first part of this project builds on a previous project by Eric Nævdal and Anne-Sophie Crépin at Beijer Institute in Stockholm. We want to address weaknesses in how risk of irreversible catastrophes is modelled in economics. In one subproject we suggest to model climate induced risk as a process with inertia. In another we examine the how shadow prices after a catastrophe affects policy before a catastrophe and come to the surprising, but quite general result, that they do not.

In the last part of the project we study learning about crucial parameter values in the climate system and how the potential for learning affects optimal climate policy, by using an integrated assessment model (ILICC) developed at the Frisch Centre jointly with Larry Karp at University of California, Berkeley and Michael Oppenheimer at Princeton University. Preliminary results indicate that the existence of positive feedbacks in the climate system together with uncertainty about the economic impact of climate change prescribes a precautionary approach to climate change.