Energy Balance Climate Models and the Spatial Structure of Optimal Mitigation Policies
We develop a one-dimemsional energy balance climate model with heat transportation across locations. We introduce the concept of po- tential world GDP at time t, and we introduce, through the temper- ature function, spatial characteristics into the damage function which make damages latitude dependent. We solve the social plannerÃƒï¿½Ã¯Â¿Â½s prob- lem and characterize the competitive equilibrium. We deÃƒï¿½Ã¯Â¿Â½ne optimal taxes on fossil fuels and proÃƒï¿½Ã¯Â¿Â½t taxes on Ãƒï¿½Ã¯Â¿Â½rms that extract fossil fuels. Our results suggest that if the implementation of international trans- fers across latitudes is not possible, then optimal taxes are spatially non homogeneous and tend to be lower at the poor latitudes. The degree of spatial diÃƒï¿½Ã‚Â¤erentiation of optimal taxes depend on heat trans- portation. We also locate suÃƒï¿½Ã‚Â¢ cient conditions for optimal mitigation policies to have rapid ramp-up initially and then decrease over time. By employing the properties of the spatial model and approximating solutions, we show how to study the impact of thermal transport across latitudes on welfare inequality.
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