The interest rate should fall with global warming. Remedial policy sho
uld allow for this endogeneity. In the simplest infinite-horizon model
yielding a steady-state, one can derive the trend that an ad valorem
fossil fuel tax should take to internalize the externality from emissi
ons. It is negative. If implemented, it would reduce fossil fuel deple
tion, and raise the rates of interest and growth to the values they wo
uld have had without global warming. The case for a falling fossil fue
l tax is reinforced by the possibilities of future emission abatement,
and learning about the damage emissions cause.