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An Extended Integrated Assessment Model for Mitigation and Adaptation Policies on Climate Change

In: Control Systems and Mathematical Methods in Economics

Author

Listed:
  • Willi Semmler

    (New School for Social Research
    International Institute for Applied Systems Analysis
    University of Bielefeld)

  • Helmut Maurer

    (University of Münster)

  • Anthony Bonen

    (Labour Market Information Council)

Abstract

We present an extended integrated assessment model (IAM) that explicitly solves for optimal climate financing policies. As with other IAMs, our approach ties economic activity with their externalities and feedback effects. We extend standard IAM methodologies to find the optimal allocation of infrastructure expenditure to carbon-neutral physical capital, climate change adaptation, and emissions mitigation. Optimal control solutions are obtained by discretizing the control problem and applying nonlinear programming methods. We demonstrate that the endogenously selected infrastructure shares out-perform fixed allocations by increasing consumption, private capital and tax revenue, while reducing public debt and CO2 emissions. We find 92–95% of spending should be allocated to physical infrastructure with the remainder going to mitigation and adaptation, for which the major part is used for adaptation. Further, homotopic analysis is conducted on unobservable parameters. We show that adaptation expenditure increases with the productive efficiency of non-renewables and emissions mitigation rises as its effect becomes nonlinear. The homotopic results demonstrate that our main findings are stable.

Suggested Citation

  • Willi Semmler & Helmut Maurer & Anthony Bonen, 2018. "An Extended Integrated Assessment Model for Mitigation and Adaptation Policies on Climate Change," Lecture Notes in Economics and Mathematical Systems, in: Gustav Feichtinger & Raimund M. Kovacevic & Gernot Tragler (ed.), Control Systems and Mathematical Methods in Economics, pages 297-317, Springer.
    • Handle: RePEc:spr:lnechp:978-3-319-75169-6_15
    DOI: 10.1007/978-3-319-75169-6_15
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    Citations

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    Cited by:

    1. Di Bartolomeo, Giovanni & Minooei Fard, Behnaz & Semmler, Willi, 2023. "Greenhouse gases mitigation: global externalities and short-termism," Environment and Development Economics, Cambridge University Press, vol. 28(3), pages 230-241, June.
    2. Catalano, Michele & Forni, Lorenzo & Pezzolla, Emilia, 2020. "Climate-change adaptation: The role of fiscal policy," Resource and Energy Economics, Elsevier, vol. 59(C).
    3. Mathews, Shilpita & Surminski, Swenja & Roezer, Viktor, 2021. "The risk of corporate lock-in to future physical climate risks: the case of flood risk in England and Wales," LSE Research Online Documents on Economics 112801, London School of Economics and Political Science, LSE Library.
    4. Mathews, Shilpita & Surminski, Swenja & Roezer, Viktor, 2021. "The risk of corporate lock-in to future physical climate risks: the case of flood risk in England and Wales," LSE Research Online Documents on Economics 112807, London School of Economics and Political Science, LSE Library.
    5. Stefan Mittnik & Willi Semmler & Alexander Haider, 2020. "Climate Disaster Risks—Empirics and a Multi-Phase Dynamic Model," Econometrics, MDPI, vol. 8(3), pages 1-27, August.
    6. Olk, Christopher & Schneider, Colleen & Hickel, Jason, 2023. "How to pay for saving the world: Modern Monetary Theory for a degrowth transition," Ecological Economics, Elsevier, vol. 214(C).
    7. Thouraya Bahri & Aditya Singh, 2021. "COVID-19 and the Impact on Debt: Policy Implications," Working Papers 2107, New School for Social Research, Department of Economics.

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