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Optimum Growth and Carbon Policies with Lags in the Climate System

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  • Lucas Bretschger
  • Christos Karydas

Abstract

We study the e ects of greenhouse gas emissions on optimum growth and climate policy by using an endogenous 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 the 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.

Suggested Citation

  • Lucas Bretschger & Christos Karydas, 2014. "Optimum Growth and Carbon Policies with Lags in the Climate System," OxCarre Working Papers 144, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  • Handle: RePEc:oxf:oxcrwp:144
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    References listed on IDEAS

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    Cited by:

    1. Lee H. Endress & James A. Roumasset & Christopher A. Wada, 2020. "Do Natural Disasters Make Sustainable Growth Impossible?," Economics of Disasters and Climate Change, Springer, vol. 4(2), pages 319-345, July.
    2. Lucas Bretschger & Aimilia Pattakou, 2019. "As Bad as it Gets: How Climate Damage Functions Affect Growth and the Social Cost of Carbon," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 72(1), pages 5-26, January.
    3. 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.
    4. Lucas Bretschger & Sjak Smulders, 2018. "Taking Time for the Environment: On Timing and the Role of Delays in Environmental and Resource Economics," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 70(4), pages 731-736, August.
    5. Tsigaris, Panagiotis & Wood, Joel, 2019. "The potential impacts of climate change on capital in the 21st century," Ecological Economics, Elsevier, vol. 162(C), pages 74-86.
    6. Marie-Catherine Riekhof & Johannes Bröcker, 2017. "Does The Adverse Announcement Effect Of Climate Policy Matter? — A Dynamic General Equilibrium Analysis," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 8(02), pages 1-34, May.

    More about this item

    Keywords

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

    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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