TY - GEN
T1 - On optimal economic response to catastrophic climate change risks
AU - Tsur, Yacov
AU - Zemel, Amos
N1 - Publisher Copyright:
© Institute of Mathematics and Informatics, 2008 © Vilnius Gediminas Technical University, 2008.
PY - 2008/1/1
Y1 - 2008/1/1
N2 - We employ Optimal Control methods to analyze emission policies under risk of catastrophic climate change. Since the occurrence hazard is added to the social discount rate, the latter (i) increases and (ii) turns endogenous to the global warming policy. The second effect bears profound policy implications that are magnified by economic growth. In particular, it implies that greenhouse gases (GHG) emission should gradually be brought to a halt. Due to the public bad nature of the catastrophic risk, the second effect is ignored in a competitive allocation and unregulated economic growth will give rise to excessive emissions. We find that the GHG emission paths under the optimal and competitive growth regimes lie at the extreme ends of the range of feasible emissions. We derive the Pigouvian hazard tax that implements the optimal growth regime.
AB - We employ Optimal Control methods to analyze emission policies under risk of catastrophic climate change. Since the occurrence hazard is added to the social discount rate, the latter (i) increases and (ii) turns endogenous to the global warming policy. The second effect bears profound policy implications that are magnified by economic growth. In particular, it implies that greenhouse gases (GHG) emission should gradually be brought to a halt. Due to the public bad nature of the catastrophic risk, the second effect is ignored in a competitive allocation and unregulated economic growth will give rise to excessive emissions. We find that the GHG emission paths under the optimal and competitive growth regimes lie at the extreme ends of the range of feasible emissions. We derive the Pigouvian hazard tax that implements the optimal growth regime.
KW - Abrupt climate change
KW - Economic growth
KW - Emission policy
KW - Environmental catastrophes
KW - Hazardrate
UR - http://www.scopus.com/inward/record.url?scp=84910142476&partnerID=8YFLogxK
M3 - Conference contribution
AN - SCOPUS:84910142476
T3 - 20th International Conference EURO Mini Conference "Continuous Optimization and Knowledge-Based Technologies", EurOPT 2008
SP - 433
EP - 438
BT - 20th International Conference EURO Mini Conference "Continuous Optimization and Knowledge-Based Technologies", EurOPT 2008
A2 - Sakalauskas, Leonidas
A2 - Weber, Gerhard-Wilhelm
A2 - Zavadskas, Edmundas
PB - Vilnius Gediminas Technical University
T2 - 20th International Conference EURO Mini Conference: Continuous Optimization and Knowledge-Based Technologies, EurOPT 2008
Y2 - 20 May 2008 through 23 May 2008
ER -
