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Economics of climate change: introducing the Basic Climate Economic (BCE) model

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  • Bretschger, Lucas
  • Karydas, Christos

Abstract

Environmental economics models are often too complex to be communicated in an illustrative manner. For this reason, this paper develops the Basic Climate Economic (BCE) model that features core elements of macroeconomic and climate economic modelling, while allowing for an illustrative examination of the development path. The BCE model incorporates fossil stock depletion, pollution stock accumulation, endogenous growth, and climate-induced capital depreciation. We first use graphical analysis to show the effects of climate change and climate policy on economic development. Intuition for the different model mechanisms, the functional forms, and the effects of different climate policies is provided. We then show the model equations in mathematical terms to derive closed-form solutions and to run model simulations relating to the graphical part. Finally, we compare our setup to other models of climate economics.

Suggested Citation

  • Bretschger, Lucas & Karydas, Christos, 2019. "Economics of climate change: introducing the Basic Climate Economic (BCE) model," Environment and Development Economics, Cambridge University Press, vol. 24(6), pages 560-582, December.
    • Handle: RePEc:cup:endeec:v:24:y:2019:i:6:p:560-582_2
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    Cited by:

    1. Moritz A. Drupp & Frikk Nesje & Robert C. Schmidt & Robert Christian Schmidt, 2022. "Pricing Carbon," CESifo Working Paper Series 9608, CESifo.
    2. Lucas Bretschger & Evgenij Komarov, 2023. "All Inclusive Climate Policy in a Growing Economy: The Role of Human Health," CER-ETH Economics working paper series 23/384, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    3. Lucas Bretschger & Karen Pittel, 2020. "Twenty Key Challenges in Environmental and Resource Economics," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 77(4), pages 725-750, December.
    4. Fabra, Natalia & Lacuesta, Aitor & Souza, Mateus, 2022. "The implicit cost of carbon abatement during the COVID-19 pandemic," European Economic Review, Elsevier, vol. 147(C).
    5. Bretschger, Lucas, 2024. "Green Road is open: Economic Pathway with a carbon price escalator," Journal of Environmental Economics and Management, Elsevier, vol. 127(C).
    6. Bretschger, Lucas, 2024. "Energy transition and climate change abatement: A macroeconomic analysis," Resource and Energy Economics, Elsevier, vol. 76(C).
    7. Christos Karydas & Anastasios Xepapadeas, 2019. "Climate change risks: pricing and portfolio allocation," CER-ETH Economics working paper series 19/327, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    8. Julia Anna Bingler & Chiara Colesanti Senni, 2020. "Taming the Green Swan: How to improve climate-related financial risk assessments," CER-ETH Economics working paper series 20/340, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    9. Julia Anna Bingler & Chiara Colesanti Senni & Pierre Monnin, 2021. "Climate Transition Risk Metrics: Understanding Convergence and Divergence across Firms and Providers," CER-ETH Economics working paper series 21/363, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    10. Bretschger, Lucas, 2020. "Malthus in the light of climate change," European Economic Review, Elsevier, vol. 127(C).
    11. Florian Böser & Chiara Colesanti Senni, 2020. "Emission-based Interest Rates and the Transition to a Low-carbon Economy," CER-ETH Economics working paper series 20/337, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    12. Luigi Bonatti & Lorenza Alexandra Lorenzetti, 2022. "Public Policies and Long-Run Growth in a Model with Environmental Degradation," CESifo Working Paper Series 9539, CESifo.

    More about this item

    JEL classification:

    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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