We are studying how climate risk impacts the cost of carbon dioxide emissions.
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| Figure taken from Bauer et al., 2023. |
Group members involved
Research questions
How does climate risk impact the cost of carbon?
Climate-economy integrated assessment models (IAMs) are the state-of-the-art tool policymakers use to assess the benefits and costs of climate policy. Conventional IAMs generally assess the benefits and costs of climate policy within a Ramsey growth framework. However, such models struggle to comprehensively incoroporate risk in their policy recommendations. We’re working to use methods from financial asset pricing to directly include risk considerations in climate policy recommendations. Specifically, we built the Climate Asset Pricing model -- AR6, a financial asset pricing based IAM (built off EZClimate), with each of its components being in-line with the sixth assessment report issued by the IPCC.
Highlighted work
Bauer, A. M., Proistosescu, C., Wagner, G. Carbon Dioxide as a Risky Asset. CESifo Working Paper No. 10278 and CEEP Working Paper No. 23, 2023. Link to CESifo. Link to CEEP.
Proistosescu, C. and Wagner, G. Uncertainties in Climate and Weather Extremes Increase the Cost of Carbon. One Earth, 2(6), 2020. https://doi.org/10.1016/j.oneear.2020.06.002
Funding sources
- The Gies College of Business Office of Risk Management and Insurance at the University of Illinois at Urbana Champaign.
- The School of Earth, Society, and Environment at the University of Illinois at Urbana Champaign.
- The Tamer School of Social Enterprise.
- The Jain Family Institute.
