This study is about developing a unified cost-benefit framework of climate, nature conservation and land policies under risk and uncertainty. We derive modified Hotelling rules from a social planner’s welfare optimization.
Four forces jointly determine market design: First, discounted marginal climate damages enter the social cost of carbon (SCC), marginal ecosystem services the social value of nature (SVN) and the marginal product of land determines the social value of converted land (SVCL). Second, climate, nature and land are coupled, which raises all prices: degradation of ecosystems increases the SCC and the SVCL, while climate damages raise the SVN. Third, a climate-nature beta quantifies additional hedging components of policies against fat tails, when we consider a stochastic setting with exogenous random shocks. The climate-nature beta summarizes the option values for abatement, adaptation, ecosystem restoration and carbon dioxide removal. Fourth, Markov markups quantify tipping risks, which we capture by extending the model to a constrained Markov decision process with state-contingent transition probabilities.
Thereby, we endogenize tipping points: the likelihood of moving into a high-damage regime becomes a function of the atmospheric carbon stock and natural capital, which depend on policy choices. Thus, hazard risks are a policy-sensitive component of the system’s dynamics. The model yields state-contingent asset-pricing formulas for carbon prices, restoration subsidies, taxes on land use and land conversion and capacity payments.
Date
23.7.2026
, 10.30 a.m. until noon
Speaker
Prof. Dr. Ottmar Edenhofer, Technical University of Berlin, Director at Potsdam Institute for Climate Impact Research
Ottmar Edenhofer is one of the world’s leading experts on the politics aneconomics of climate change. He is Director and Chief Economist at the Potsdam Institute for Climate Impact Research (PIK) and Professor at the Technical University of Berlin.
From 2008 to 2015, Edenhofer was co-chair of Working Group III of the Intergovernmental Panel on Climate Change (IPCC) and played a key role in shaping the Fifth Assessment Report on Climate Change, which formed the scientific basis for the Paris Agreement. Since April 2022, Edenhofer has been chair of the European Environment Agency’s newly established European Scientific Advisory Board on Climate Change. Its task is to provide independent scientific advice and produce reports assessing the extent to which EU policy is consistent with the 2021 European Climate Law and the EU’s commitments under the Paris Agreement.
Edenhofer is a member of the German Academy of Science and Engineering (acatech), the German Academy of Sciences Leopoldina and the Berlin-Brandenburg Academy of Sciences and Humanities (BBAW), among others. According to the Web of Science citation index, he was among the top 1% of most-cited scientists worldwide in the category ‘Interdisciplinary Science’ in 2018, 2020 and 2021.
In July 2018, Edenhofer was awarded the Romano Guardini Prize by the Catholic Academy in Bavaria. In 2020, the German Federal Environmental Foundation (DBU) awarded him the prestigious German Environmental Prize. In December 2022, Edenhofer received the Bavarian Constitutional Order.
Venue
Institute for Employment Research
Regensburger Straße 104
90478 Nürnberg
Room Re100 E10
or online via MS Teams
Registration
Researchers who like to participate, please register via eveeno