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CARBON PRICES FOR THE NEXT HUNDRED YEARS: New research provides rule of thumb for pricing greenhouse gas emissions

  • Published Date: March 2018

The price put on greenhouse gas emissions will determine how quickly we see the phasing-out of key activities that cause climate change, including the current fleet of polluting vehicles, power-generating plants and energy inefficient buildings. Policy-makers planning such phase-outs can follow a simple rule of thumb in which the price of emissions grows at the same rate as the overall economy.

That is central message of research by Reyer Gerlagh and Matti Liski, published in the March 2018 issue of the Economic Journal. Their analysis suggests that the complexity of the problem of climate change does not imply that the policies that we implement in response have to be complex.

Just as central banks have developed simple rules, climate policy-making can rely on rules of thumb over very long time periods. In this case, the carbon price should follow the growth rate of GDP for decades to come.

Climate change is a slow process. This implies that the impacts of current emissions will arrive with a delay of decades – after 60-70 years in the timescale analysed in this study. The nature of the process also implies that we will not learn much about the impacts in the near future.

But global GDP is estimated to increase by a factor of between 5 to 7 during the coming century. Thus, our view of the impacts will almost by definition remain close to those currently held while the economy is moving forward fast. For this reason, in the absence of climate catastrophes, economic growth will be the main driver of the price of emissions, the carbon price.

The researchers quantify these effects by developing a climate-economy model that represents both the economy and the climate system. The climate impacts are drastic drops in economic output, with a 10% loss being the main case from doubling the global stock of carbon dioxide.

But we cannot be sure if such losses will ever arrive, for example, through the melting of the Greenland ice sheet and the associated sea-level rise. The ice sheet may be melting already or may never melt.

The learning rates of such events are calibrated to represent the views published recently in science journals. The views on learning of the climate impacts, coming from the science community, imply that the next century is not enough time to rule out severe impacts on the economy even if we do not observe the impacts.

The 2015 United Nations Climate Change Conference negotiated an agreement that calls for zero carbon emissions by the end of the current century. Current emissions exceed 30 gigatonnes annually, while the annual world output is about €60 trillion. A worldwide carbon price of €100/tCO2 thus represents about 5% of the value of the output.

The researchers conclude that this carbon price will be reached by the end of the century if we let the price increase at the growth rate of the economy and start with a relatively modest price of €14/tCO2. The UN objective of zero emissions is then feasible.


Notes for editors: ‘Carbon Prices for the Next Hundred Years’ by Reyer Gerlagh and Matti Liski is published in the March 2018 issue of the Economic Journal.

Reyer Gerlagh is at the University of Tilburg. Matti Liski is at Aalto University.

For further information: contact Romesh Vaitilingam on +44-7768-661095 (email:; Twitter: @econromesh); Reyer Gerlagh via email:; or Matti Liski via email: