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Environmental Macroeconomics

In: Handbook of Macroeconomics

Author

Listed:
  • Hassler, J.
  • Krusell, P.
  • Smith, A.A.

Abstract

We discuss climate change and resource scarcity from the perspective of macroeconomic modeling and quantitative evaluation. Our focus is on climate change: we build a very simple “integrated assessment model,†ie, a model that integrates the global economy and the climate in a unified framework. Such a model has three key modules: the climate, the carbon cycle, and the economy. We provide a description of how to build tractable and yet realistic modules of the climate and the carbon cycle. The baseline economic model, then, is static but has a macroeconomic structure, ie, it has the standard features of modern macroeconomic analysis. Thus, it is quantitatively specified and can be calibrated to obtain an approximate social cost of carbon. The static model is then used to illustrate a number of points that have been made in the broad literature on climate change. Our chapter begins, however, with a short discussion of resource scarcity—also from the perspective of standard macroeconomic modeling—offering a dynamic framework of analysis and stating the key challenges. Our last section combines resource scarcity and the integrated assessment setup within a fully dynamic general equilibrium model with uncertainty. That model delivers positive and normative quantitative implications and can be viewed as a platform for macroeconomic analysis of climate change and sustainability issues more broadly.

Suggested Citation

  • Hassler, J. & Krusell, P. & Smith, A.A., 2016. "Environmental Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 1893-2008, Elsevier.
  • Handle: RePEc:eee:macchp:v2-1893
    DOI: 10.1016/bs.hesmac.2016.04.007
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    More about this item

    Keywords

    Climate system; Climate change; Carbon cycle; Damages; Growth; Discounting; Externality; Pigou tax; H23; O4; Q01; Q3; Q4; Q54;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
    • Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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