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Optimal Multi-Phase Transition Paths toward A Stabilized Global Climate: Integrated Dynamic Requirements Analysis for the 'Tech Fix'

Author

Listed:
  • Paul A. David

    (Stanford University)

  • Adriaan van Zon

    (Maastricht University)

Abstract

This paper analyzes the requirements for a social welfare-optimized transition path toward a carbon-free economy, focusing particularly on the role of R&D and other technological measures to achieve timely supply-side transformations in the global production regime that will avert catastrophic climate instability. We construct a heuristic integrated model of macroeconomic growth constrained by geophysical system with climate feedbacks, including extreme weather damages from global warming driven by greenhouse gas emissions, and 'tipping point' for catastrophic runaway warming. A variety of options for technology development and implementation, each having a distinctive primary functionality CO2 emissions control, and the dynamic relationships and interactions among them are examined. The specifications recognize (i) the endogeneity and embodiment of technical innovations, and (ii) the irreversibility and long gestation periods of required intangible (R&D) and tangible capital formation. Efficient exercise of these options is shown to involve sequencing different investment and production activities in separate temporal "phases" that together form a transition path to a carbon free economy. To study the requirements of a timely (catastrophe-averting) transition, we formulate a sequence of optimal control sub-problems linked together by transversality conditions, the solution of which determines the optimum allocation of resources and sequencing of the several phases implied by the options under consideration. Ours is "planning-model" approach, which departs from conventional IAM exercises by eschewing assumptions about the behaviors of economic and political actors in response to market incentives and specific public policy measures. Solutions for each of several multi-phase models yields the optimal phase durations and rates of investment and production that characterize the transition path. Sensitivity experiments with parameters of economic and geophysical sub-systems provide insights into the robustness of the requirements analysis under variations in the technical and geophysical system parameters.

Suggested Citation

  • Paul A. David & Adriaan van Zon, 2012. "Optimal Multi-Phase Transition Paths toward A Stabilized Global Climate: Integrated Dynamic Requirements Analysis for the 'Tech Fix'," Discussion Papers 12-006, Stanford Institute for Economic Policy Research.
    • Handle: RePEc:sip:dpaper:12-006
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    References listed on IDEAS

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    1. David, Paul & Van Zon, Adriaan, 2012. "Optimal multi-phase transition paths toward a global green economy," MERIT Working Papers 2012-079, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    2. Hall, Darwin C. & Behl, Richard J., 2006. "Integrating economic analysis and the science of climate instability," Ecological Economics, Elsevier, vol. 57(3), pages 442-465, May.
    3. Daron Acemoglu & Philippe Aghion & Leonardo Bursztyn & David Hemous, 2012. "The Environment and Directed Technical Change," American Economic Review, American Economic Association, vol. 102(1), pages 131-166, February.
    4. Richard S.J. Tol, 2011. "The Social Cost of Carbon," Annual Review of Resource Economics, Annual Reviews, vol. 3(1), pages 419-443, October.
    5. Kenneth Arrow, 2009. "A note on uncertainty and discounting in models of economic growth," Journal of Risk and Uncertainty, Springer, vol. 38(2), pages 87-94, April.
    6. Tol, Richard S. J., 2008. "The Social Cost of Carbon: Trends, Outliers and Catastrophes," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy, vol. 2, pages 1-22.
    7. Hans-Werner Sinn, 2008. "Public policies against global warming: a supply side approach," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 15(4), pages 360-394, August.
    8. Paul A. David & Adriaan van Zon, 2012. "Optimal Multi-Phase Transition Paths toward A Stabilized Global Climate: Integrated Dynamic Requirements Analysis for the 'Tech Fix'," Discussion Papers 12-006, Stanford Institute for Economic Policy Research.
    9. van der Ploeg, Frederick & Withagen, Cees, 2012. "Is there really a green paradox?," Journal of Environmental Economics and Management, Elsevier, vol. 64(3), pages 342-363.
    10. Dowlatabadi, Hadi, 1995. "Integrated assessment models of climate change : An incomplete overview," Energy Policy, Elsevier, vol. 23(4-5), pages 289-296.
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    2. David, Paul & Van Zon, Adriaan, 2012. "Optimal multi-phase transition paths toward a stabilized global climate: Integrated dynamic requirements analysis for the 'tech fix'," MERIT Working Papers 2012-075, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).

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    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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