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Energy balance climate models and general equilibrium optimal mitigation policies

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  • Brock, William A.
  • Engström, Gustav
  • Grass, Dieter
  • Xepapadeas, Anastasios

Abstract

In a general equilibrium model of the world economy, we develop a two-dimensional energy balance climate model featuring heat diffusion and anthropogenic forcing driven by global fossil fuel use across the sphere of the Earth. This introduces an endogenous location dependent temperature function, driving spatial characteristics, in terms of location dependent damages resulting from local temperature anomalies into the standard climate-economy framework. We solve the social planner's problem and characterize the competitive equilibrium for two polar cases differentiated by the degree of market integration. We define optimal taxes on fossil fuel use and how they may implement the planning solution. Our results suggest that if the implementation of international transfers across latitudes is not possible then optimal taxes are in general spatially non-homogeneous and may be lower at poorer latitudes. The degree of spatial differentiation of optimal taxes depends on heat transportation. By employing the properties of the spatial model, we show by numerical simulations how the impact of thermal transport across latitudes on welfare can be studied.

Suggested Citation

  • Brock, William A. & Engström, Gustav & Grass, Dieter & Xepapadeas, Anastasios, 2013. "Energy balance climate models and general equilibrium optimal mitigation policies," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2371-2396.
  • Handle: RePEc:eee:dyncon:v:37:y:2013:i:12:p:2371-2396
    DOI: 10.1016/j.jedc.2013.09.008
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. J. Isaac Miller, 2017. "Local Climate Sensitivity: A Statistical Approach for a Spatially Heterogeneous Planet," Working Papers 1702, Department of Economics, University of Missouri.
    2. Anastasios Xepapadeas & Athanasios Yannacopoulos, 2015. "Spatial Resource Management under Pollution Externalities," CEEES Paper Series CE3S-05/15, European University at St. Petersburg, Department of Economics.
    3. William Brock & Anastasios Xepapadeas, 2015. "Spatial Heat Transport, Polar Amplification and Climate Change Policy," DEOS Working Papers 1515, Athens University of Economics and Business.
    4. Brock, W. & Xepapadeas, A., 2017. "Climate change policy under polar amplification," European Economic Review, Elsevier, vol. 99(C), pages 93-112.
    5. William Brock & Anastasios Xepapadeas, 2016. "Climate Change Policy under Spatial Heat Transport and Polar Amplification," DEOS Working Papers 1604, Athens University of Economics and Business.
    6. W. A. Brock & A. Xepapadeas, 2015. "Modeling Coupled Climate, Ecosystems, and Economic Systems," Working Papers 2015.66, Fondazione Eni Enrico Mattei.
    7. Yoosoon Chang & Robert K. Kaufmann & Chang Sik Kim & J. Isaac Miller & Joon Y. Park & Sungkeun Park, 2015. "Evaluating trends in time series of distributions: A spatial fingerprint of human effects on climate," Working Papers 1622, Department of Economics, University of Missouri, revised 19 Dec 2016.
    8. Anderson, Evan W. & Brock, William & Sanstad, Alan H., 2016. "Robust Consumption and Energy Decisions," 2017 Allied Social Science Association (ASSA) Annual Meeting, January 6-8, 2017, Chicago, Illinois 250117, Agricultural and Applied Economics Association.
    9. Anastasios Xepapadeas & Athanasios Yannacopoulos, 2018. "Spatially Structured Deep Uncertainty, Robust Control, and Climate Change Policies," DEOS Working Papers 1807, Athens University of Economics and Business.
    10. W.A. Brock & A. Xepapadeas & A.N. Yannacopoulos, 2014. "Optimal Control in Space and Time and the Management of Environmental Resources," Annual Review of Resource Economics, Annual Reviews, vol. 6(1), pages 33-68, October.
    11. Engström, Gustav, 2016. "Structural and climatic change," Structural Change and Economic Dynamics, Elsevier, vol. 37(C), pages 62-74.

    More about this item

    Keywords

    Optimal carbon taxes; General equilibrium; Energy balance climate model;

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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