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Energy Balance Climate Models and the Spatial Structure of Optimal Mitigation Policies

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  • Gustav Engstrom
  • William Brock
  • Anastasios Xepapadeas

Abstract

We develop a one-dimemsional energy balance climate model with heat transportation across locations. We introduce the concept of po- tential world GDP at time t, and we introduce, through the temper- ature function, spatial characteristics into the damage function which make damages latitude dependent. We solve the social planner��s prob- lem and characterize the competitive equilibrium. We de��ne optimal taxes on fossil fuels and pro��t taxes on ��rms that extract fossil fuels. Our results suggest that if the implementation of international trans- fers across latitudes is not possible, then optimal taxes are spatially non homogeneous and tend to be lower at the poor latitudes. The degree of spatial di�¤erentiation of optimal taxes depend on heat trans- portation. We also locate su�¢ cient conditions for optimal mitigation policies to have rapid ramp-up initially and then decrease over time. By employing the properties of the spatial model and approximating solutions, we show how to study the impact of thermal transport across latitudes on welfare inequality.

Suggested Citation

  • Gustav Engstrom & William Brock & Anastasios Xepapadeas, 2012. "Energy Balance Climate Models and the Spatial Structure of Optimal Mitigation Policies," DEOS Working Papers 1202, Athens University of Economics and Business.
    • Handle: RePEc:aue:wpaper:1202
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    File URL: http://wpa.deos.aueb.gr/docs/BEX-January_2012.pdf
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    References listed on IDEAS

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    1. Chichilnisky, Graciela & Heal, Geoffrey, 1994. "Who should abate carbon emissions? : An international viewpoint," Economics Letters, Elsevier, vol. 44(4), pages 443-449, April.
    2. Krusell, Per & Mukoyama, Toshihiko & Rogerson, Richard & Sahin, Aysegül, 2011. "A three state model of worker flows in general equilibrium," Journal of Economic Theory, Elsevier, vol. 146(3), pages 1107-1133, May.
    3. Keen, Michael & Kotsogiannis, Christos, 2014. "Coordinating climate and trade policies: Pareto efficiency and the role of border tax adjustments," Journal of International Economics, Elsevier, vol. 94(1), pages 119-128.
    4. Mikhail Golosov & John Hassler & Per Krusell & Aleh Tsyvinski, 2014. "Optimal Taxes on Fossil Fuel in General Equilibrium," Econometrica, Econometric Society, vol. 82(1), pages 41-88, January.
    5. Melissa Dell & Benjamin F. Jones & Benjamin A. Olken, 2008. "Climate Change and Economic Growth: Evidence from the Last Half Century," NBER Working Papers 14132, National Bureau of Economic Research, Inc.
    6. Thomas Sterner & U. Martin Persson, 2008. "An Even Sterner Review: Introducing Relative Prices into the Discounting Debate," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 2(1), pages 61-76, Winter.
    7. Geoffrey Heal, 2009. "Climate Economics: A Meta-Review and Some Suggestions for Future Research," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 3(1), pages 4-21, Winter.
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    Cited by:

    1. Moreno-Cruz, Juan & Taylor, M. Scott, 2017. "An energy-centric theory of agglomeration," Journal of Environmental Economics and Management, Elsevier, vol. 84(C), pages 153-172.
    2. William Brock & Gustav Engstrom & Anastasios Xepapadeas, 2012. "Energy Balance Climate Models, Damage Reservoirs and the Time Profile of Climate Change Policy," Working Papers 2012.20, Fondazione Eni Enrico Mattei.
    3. Desmet, Klaus & Rossi-Hansberg, Esteban, 2015. "On the spatial economic impact of global warming," Journal of Urban Economics, Elsevier, vol. 88(C), pages 16-37.

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    More about this item

    Keywords

    Energy Balance Climate Models; Heat Di¤usion; Tem- perature Distribution; Spatial Optimal Taxes;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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