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Optimum Growth and Carbon Policies with Lags in the Climate System

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Abstract

We study the effects of greenhouse gas emissions on optimum growth and environmental policy by using an expansion-in-varieties growth model with polluting non-renewable resources. Climate change harms the capital stock. Our main contribution is to introduce and extensively explore the naturally determined time lag between greenhouse gas emission and the damages due to climate change which proves to be crucial for the transition of the economy towards its steady state. The social optimum and optimal abatement policies are fully characterized. The inclusion of a green technology delays optimal resource extraction. The optimal tax rate on emissions is proportional to output. Poor understanding of the emissions diffusion process leads to suboptimal carbon taxes and suboptimal growth and resource extraction.

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  • Lucas Bretschger & Christos Karydas, 2017. "Optimum Growth and Carbon Policies with Lags in the Climate System," CER-ETH Economics working paper series 13/184, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  • Handle: RePEc:eth:wpswif:13-184
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    1. repec:wsi:ccexxx:v:08:y:2017:i:02:n:s2010007817500075 is not listed on IDEAS
    2. Quaas, Martin F. & Bröcker, Johannes, 2016. "Substitutability and the social cost of carbon in a solvable growth model with irreversible climate change," Economics Working Papers 2016-09, Christian-Albrechts-University of Kiel, Department of Economics.

    More about this item

    Keywords

    Climate Policy; Non-Renewable Resource Dynamics; Pollution Diffusion Lag; Optimum Growth;

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development

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