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Optimal policies for climate change: A joint consideration of CO2 and methane

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  • Zhang, Xiao-Bing
  • Xu, Jing

Abstract

Climate change mitigation requires the reduction of greenhouse gas (GHG) emissions. The majority of the discussions on climate change policy focus exclusively on the reduction of carbon dioxide (CO2) emissions but ignore other important GHGs such as methane. This paper investigates the optimal choice of policy instruments under the joint consideration of CO2 and methane in a dynamic setting with asymmetric information and pollutant correlations. We develop a dynamic programming model with two state variables and calibrate it to the global warming case. The results show that it is optimal to levy tax on both CO2 and methane. A mixed strategy that implements a tax on CO2 and a quota on methane is the second-ranked choice.

Suggested Citation

  • Zhang, Xiao-Bing & Xu, Jing, 2018. "Optimal policies for climate change: A joint consideration of CO2 and methane," Applied Energy, Elsevier, vol. 211(C), pages 1021-1029.
    • Handle: RePEc:eee:appene:v:211:y:2018:i:c:p:1021-1029
    DOI: 10.1016/j.apenergy.2017.10.067
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    Cited by:

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    2. Vega, F. & Baena-Moreno, F.M. & Gallego Fernández, Luz M. & Portillo, E. & Navarrete, B. & Zhang, Zhien, 2020. "Current status of CO2 chemical absorption research applied to CCS: Towards full deployment at industrial scale," Applied Energy, Elsevier, vol. 260(C).
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    More about this item

    Keywords

    Policy design; Climate change; Greenhouse gases; Dynamic model; Multiple pollutants;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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