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Equilibrium to Equilibrium Dynamics in a Climate Change Economy

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  • Song, Edward

Abstract

Different from past economic research, I incorporate recent theories by climatologists that burning fossil fuels increases the equilibrium level of carbon dioxide, CO2, in the atmosphere into a macroeconomic growth model. In the model, both production and consumption produces $CO_2$ emissions. I also assume that Anthropogenic Global Warming, AGW, not only damages production, but also capital stock and utility. In addition, a boundary condition similar to the Simpson-Kombayashi-Ingersoll (SKI) Limit holds, that there exists a critical temperature which leads to runaway greenhouse warming. Under these assumptions with no alternative fuel sources, and unlimited fossil fuel supply, the economy eventually flat lines (dies). Abatement only delays the inevitable. Using discount factors of .95 and .99, modest abatement policy can increase world welfare but do not increase life expectancy. When the discount factor is zero, conclusions of which policy is best is sensitive to the time horizon policy makers use. If a 100 year time horizon is used, modest consumption abatement may be the best policy, which may actually decrease life expectancy. However, a theoretical infinite time horizon may imply near zero emissions as the growth of damages is reduced and the probability of survival increases. Unfortunately, because humans have finite lives, this creates an ethical dilemma. In order for society to be better off, the current living must sacrifice by accepting policies that lead them to experience near zero output, consumption and near zero lifetime utility and welfare.

Suggested Citation

  • Song, Edward, 2015. "Equilibrium to Equilibrium Dynamics in a Climate Change Economy," MPRA Paper 72435, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:72435
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    File URL: https://mpra.ub.uni-muenchen.de/72435/1/MPRA_paper_72435.pdf
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    References listed on IDEAS

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    1. Simon Dietz & Nicholas Stern, 2014. "Endogenous growth, convexity of damages and climate risk: how Nordhaus� framework supports deep cuts in carbon emissions," GRI Working Papers 159, Grantham Research Institute on Climate Change and the Environment.
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    6. Richard S. J. Tol, 2009. "The Economic Effects of Climate Change," Journal of Economic Perspectives, American Economic Association, vol. 23(2), pages 29-51, Spring.
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    More about this item

    Keywords

    Macroeconomics; Economic Growth; Climate Change;
    All these keywords.

    JEL classification:

    • E19 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Other
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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