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Spatial Climate-Economic Models in the Design of Optimal Climate Policies Across Locations

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  • William A. Brock

    (Department of Economics, University of Wisconsin)

  • Gustav Engström

    (The Beijer Institute of Ecological Economics and University of Stockholm)

  • Anastasios Xepapadeas

    (Athens University of Economics and Business)

Abstract

We couple a one-dimensional energy balance climate model with heat transportation across latitudes, with an economic growth model. We derive temperature and damage distributions across locations and optimal taxes on fossil fuels which, in contrast to zero-dimensional Integrated Assessment Models, account for cross latitude externalities. We analyse the impact of welfare weights on the spatial structure of optimal carbon taxes and identify conditions under which these taxes are spatially nonhomogeneous and are lower in latitudes with relatively lower per capita income populations. We show the way that heat transportation affects local economic variables and taxes, and locate sufficient conditions for optimal mitigation policies to have rapid ramp-up initially and then decrease over time.

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Bibliographic Info

Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2012.74.

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Date of creation: Oct 2012
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Handle: RePEc:fem:femwpa:2012.74

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Keywords: One-dimensional Energy Balance Model; Heat Transport; Latitudes; Temperature Distribution; Damage Distribution; Social Planner; Competitive Equilibrium; Local Welfare Weights; Optimal Taxes;

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  1. Graciela Chichilnisky & Geoffrey Heal, 1993. "Who Should Abate Carbon Emissions? An International Viewpoint," NBER Working Papers 4425, National Bureau of Economic Research, Inc.
  2. Melissa Dell & Benjamin F. Jones & Benjamin A. Olken, 2012. "Temperature Shocks and Economic Growth: Evidence from the Last Half Century," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(3), pages 66-95, July.
  3. John Hassler & Per Krusell, 2012. "Economics and Climate Change: Integrated Assessment in a Multi-Region World," NBER Working Papers 17757, National Bureau of Economic Research, Inc.
  4. Joshua Elliott & Ian Foster & Samuel Kortum & Todd Munson & Fernando Pérez Cervantes & David Weisbach, 2010. "Trade and Carbon Taxes," American Economic Review, American Economic Association, vol. 100(2), pages 465-69, May.
  5. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, December.
  6. Michael Keen & Christos Kotsogiannis, 2011. "Coordinating Climate and Trade Policies: Pareto Efficiency and the Role of Border Tax Adjustments," CESifo Working Paper Series 3494, CESifo Group Munich.
  7. Martin L. Weitzman, 2009. "On Modeling and Interpreting the Economics of Catastrophic Climate Change," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 1-19, February.
  8. Mikhail Golosov & John Hassler & Per Krusell & Aleh Tsyvinski, 2011. "Optimal Taxes on Fossil Fuel in General Equilibrium," NBER Working Papers 17348, National Bureau of Economic Research, Inc.
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