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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. 99(C), pages 93-112.
  • Handle: RePEc:eee:eecrev:v:99:y:2017:i:c:p:93-112
    DOI: 10.1016/j.euroecorev.2017.06.008
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    References listed on IDEAS

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    Cited by:

    1. George Economides & Anastasios Xepapadeas, 2018. "Monetary Policy under Climate Change," CESifo Working Paper Series 7021, CESifo Group Munich.
    2. George Economides & Anastasios Xepapadeas, 2018. "Monetary policy under climate change," Working Papers 247, Bank of Greece.

    More about this item

    Keywords

    Polar amplification; Spatial heat and moisture transport; Optimal policy; Emission taxes; Market discount rate;

    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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