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Economics and Climate Change: Integrated Assessment in a Multi-Region World

  • John Hassler
  • Per Krusell

This paper develops a model that integrates the climate and the global economy---an integrated assessment model---with which different policy scenarios can be analyzed and compared. The model is a dynamic stochastic general-equilibrium setup with a continuum of regions. Thus, it is a full stochastic general-equilibrium version of RICE, Nordhaus's pioneering multi-region integrated assessment model. Like RICE, our model features traded fossil fuel but otherwise has no markets across regions---there is no insurance nor any intertemporal trade across them. The extreme form of market incompleteness is not fully realistic but arguably not a decent approximation of reality. Its major advantage is that, along with a set of reasonable assumptions on preferences, technology, and nature, it allows a closed-form model solution. We use the model to assess the welfare consequences of carbon taxes that differ across as well as within oil-consuming and -producing regions. We show that, surprisingly, only taxes on oil producers can improve the climate: taxes on oil consumers have no effect at all. The calibrated model suggests large differences in views on climate policy across regions.

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File URL: http://www.nber.org/papers/w17757.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17757.

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Date of creation: Jan 2012
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Publication status: published as John Hassler & Per Krusell, 2012. "Economics And Climate Change: Integrated Assessment In A Multi-Region World," Journal of the European Economic Association, European Economic Association, vol. 10(5), pages 974-1000, October.
Handle: RePEc:nbr:nberwo:17757
Note: EEE EFG PE
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  1. John Hassler & Per Krusell & Conny Olovsson, 2012. "Energy-Saving Technical Change," NBER Working Papers 18456, National Bureau of Economic Research, Inc.
  2. John Hassler & Per Krusell & Conny Olovsson, 2010. "Oil Monopoly and the Climate," American Economic Review, American Economic Association, vol. 100(2), pages 460-64, May.
  3. Mikhail Golosov & John Hassler & Per Krusell & Aleh Tsyvinski, 2011. "Optimal Taxes on Fossil Fuel in General Equilibrium," NBER Working Papers 17348, National Bureau of Economic Research, Inc.
  4. Manne, Alan & Mendelsohn, Robert & Richels, Richard, 1995. "MERGE : A model for evaluating regional and global effects of GHG reduction policies," Energy Policy, Elsevier, vol. 23(1), pages 17-34, January.
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