Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2020-12-21
Revisions-Date: 2023-10-12
Number: 20-083/VI
Author-Name: Michael Grubb
Author-Workplace-Name: University College London
Author-Name: Rutger-Jan Lange
Author-Workplace-Name: Erasmus University of Rotterdam
Author-Name: Nicolas Cerkez
Author-Workplace-Name: University College London
Author-Name: Pablo Salas
Author-Workplace-Name: University of Cambridge
Title: Dynamic determinants of optimal global climate policy
Abstract: We explore how optimal emission abatement trajectories are affected by dynamic characteristics of greenhouse-gas emitting systems, such as inertia, induced innovation, and path-dependency, by formulating a compact and analytically tractable model with stylized damage assumptions to derive the optimal cost-benefit pathway. Our analytic solutions highlight how simple dynamic parameters affect the optimal abatement trajectory (including the optimal current effort and the cost of delay). The conventional cost-benefit result (i.e., an optimal policy with rising marginal costs that reflects discounted climate damages) arises only as a special case in which the dynamic characteristics of emitting systems are assumed to be insignificant. More generally, our model yields useful policy insights for the transition to deep decarbonization, showing that enhanced early action may greatly reduce both damages and abatement costs in the long run.
Classification-JEL: C61, O30, Q54
Keywords: abatement, DICE, energy economics, inertia, innovation, path dependence, transition
File-URL: https://papers.tinbergen.nl/20083.pdf
File-Format: application/pdf
File-Size: 975.950 bytes
Handle: RePEc:tin:wpaper:20200083