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Climate change policy under polar amplification

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  • Brock, W.
  • Xepapadeas, A.

Abstract

Polar amplification is an established scientific fact which has been associated with the surface albedo feedback and with heat and moisture transport from the Equator to the Poles. In this paper we unify a two-box climate model, which allows for heat and moisture transport from the southern region to the northern region, with an economic model of welfare optimization. Our main contribution is to show that by ignoring spatial heat and moisture transport and the resulting polar amplification, the regulator may overestimate or underestimate the tax on greenhouse gas emissions. The direction of bias depends on the relations between marginal damages from temperature increase in each region. We also determine the welfare cost when a regulator mistakenly ignores polar amplification. Numerical simulations confirm our theoretical results, while ballpark estimates indicate that the tax bias could be as high as 20%, while welfare cost could reach 2% of global effective steady-state consumption.

Suggested Citation

  • Brock, W. & Xepapadeas, A., 2017. "Climate change policy under polar amplification," European Economic Review, Elsevier, vol. 94(C), pages 263-282.
  • Handle: RePEc:eee:eecrev:v:94:y:2017:i:c:p:263-282
    DOI: 10.1016/j.euroecorev.2017.03.003
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    Cited by:

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    3. Anastasios Xepapadeas, 2023. "Uncertainty and Climate Change: The IPCC approach vs Decision Theory," DEOS Working Papers 2315, Athens University of Economics and Business.
    4. Lucas Bretschger & Aimilia Pattakou, 2019. "As Bad as it Gets: How Climate Damage Functions Affect Growth and the Social Cost of Carbon," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 72(1), pages 5-26, January.
    5. Yongyang Cai, 2020. "The Role of Uncertainty in Controlling Climate Change," Papers 2003.01615, arXiv.org, revised Oct 2020.
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    7. Bretschger, Lucas, 2021. "Getting the Costs of Environmental Protection Right: Why Climate Policy Is Inexpensive in the End," Ecological Economics, Elsevier, vol. 188(C).
    8. Torre, Davide La & Liuzzi, Danilo & Marsiglio, Simone, 2021. "Transboundary pollution externalities: Think globally, act locally?," Journal of Mathematical Economics, Elsevier, vol. 96(C).
    9. Olga Shestak & Oleg L. Shcheka & Yury Klochkov, 0. "Methodological aspects of use of countries experience in determining the directions of the strategic development of the Russian Federation arctic regions," International Journal of System Assurance Engineering and Management, Springer;The Society for Reliability, Engineering Quality and Operations Management (SREQOM),India, and Division of Operation and Maintenance, Lulea University of Technology, Sweden, vol. 0, pages 1-19.
    10. Christos Karydas & Anastasios Xepapadeas, 2019. "Climate change risks: pricing and portfolio allocation," CER-ETH Economics working paper series 19/327, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    11. Marc Gronwald, 2023. "Explosive Temperatures," CESifo Working Paper Series 10680, CESifo.
    12. Boly, Mohamed & Combes, Jean-Louis & Menuet, Maxime & Minea, Alexandru & Motel, Pascale Combes & Villieu, Patrick, 2022. "Can public debt mitigate environmental debt? Theory and empirical evidence," Energy Economics, Elsevier, vol. 111(C).
    13. Manoussi, Vassiliki & Xepapadeas, Anastasios & Emmerling, Johannes, 2018. "Climate engineering under deep uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 94(C), pages 207-224.
    14. Bretschger, Lucas, 2020. "Malthus in the light of climate change," European Economic Review, Elsevier, vol. 127(C).
    15. Anastasios Xepapadeas, 2022. "On the optimal management of environmental stock externalities," Proceedings of the National Academy of Sciences, Proceedings of the National Academy of Sciences, vol. 119(24), pages 2202679119-, June.
    16. Peter von zur Muehlen, 2022. "Prices and Taxes in a Ramsey Climate Policy Model under Heterogeneous Beliefs and Ambiguity," Economies, MDPI, vol. 10(10), pages 1-56, October.
    17. William Brock & Anastasios Xepapadeas, 2020. "The Economy, Climate Change and Infectious Diseases: Links and Policy Implications," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 76(4), pages 811-824, August.
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    19. George Economides & Anastasios Xepapadeas, 2018. "Monetary policy under climate change," Working Papers 247, Bank of Greece.
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    More about this item

    Keywords

    Polar amplification; Spatial heat and moisture transport; Optimal policy; Emission taxes; Market discount rate;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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