If there’s an approximately linear cost for carbon emissions, then estimating a good enough value will be worse than estimating the cost. You have all the original error from guessing the cost of emissions, and now you’re guessing the demand curve for emissions licenses as well.
If there is a point that will cause sudden problems, then capping and trading would work better, assuming you know where that point is. As you’ve pointed out, it’s hard to tell. As such, it’s better to treat it as a linearly increasing probability of hitting that point.
In any particular area, the cost will be approximately linear. If all you’re looking at is the emissions in one state caused by one group of things (like power plants) over the course of one year, then it’s approximately linear. Also, depending on how accurately you can guess at what the market equilibrium will be, you can narrow it down further so the linear approximation is still more accurate.
If there’s an approximately linear cost for carbon emissions, then estimating a good enough value will be worse than estimating the cost. You have all the original error from guessing the cost of emissions, and now you’re guessing the demand curve for emissions licenses as well.
If there is a point that will cause sudden problems, then capping and trading would work better, assuming you know where that point is. As you’ve pointed out, it’s hard to tell. As such, it’s better to treat it as a linearly increasing probability of hitting that point.
That doesn’t seem to be a reasonable assumption at all—expected damage seems to escalate faster at the extreme end.
In any particular area, the cost will be approximately linear. If all you’re looking at is the emissions in one state caused by one group of things (like power plants) over the course of one year, then it’s approximately linear. Also, depending on how accurately you can guess at what the market equilibrium will be, you can narrow it down further so the linear approximation is still more accurate.