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Optimum Growth and Carbon Policies with Lags in the Cllimate System

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  • Lucas Bretschger
  • Christos Karydas

Abstract

We study the effects of greenhouse gas emissions on optimum growth and climate policy by using an endogenous growth model with polluting non-renewable resources. Climate change harms the capital stock. Our main contribution is to introduce and extensively explore the naturally determined time lag between greenhouse gas emission and the damages due to climate change, which proves to be crucial for the transition of the economy towards its steady state. The social optimum and the optimal abatement policies are fully characterized. The inclusion of a green technology delays optimal resource extraction. The optimal tax rate on emissions is proportional to output. Poor understanding of the emissions diffusion process leads to suboptimal carbon taxes and suboptimal growth and resource extraction.

Suggested Citation

  • Lucas Bretschger & Christos Karydas, 2014. "Optimum Growth and Carbon Policies with Lags in the Cllimate System," OxCarre Working Papers 144, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    • Handle: RePEc:oxf:oxcrwp:144
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    Cited by:

    1. Lee H. Endress & James A. Roumasset & Christopher A. Wada, 2020. "Do Natural Disasters Make Sustainable Growth Impossible?," Economics of Disasters and Climate Change, Springer, vol. 4(2), pages 319-345, July.
    2. Lucas Bretschger & Aimilia Pattakou, 2019. "As Bad as it Gets: How Climate Damage Functions Affect Growth and the Social Cost of Carbon," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 72(1), pages 5-26, January.
    3. Bondarev, Anton & Greiner, Alfred, 2020. "Global warming and technical change: Multiple steady-states and policy options," China Economic Review, Elsevier, vol. 62(C).
    4. Quaas, Martin F. & Bröcker, Johannes, 2016. "Substitutability and the social cost of carbon in a solvable growth model with irreversible climate change," Economics Working Papers 2016-09, Christian-Albrechts-University of Kiel, Department of Economics.
    5. Lucas Bretschger & Sjak Smulders, 2018. "Taking Time for the Environment: On Timing and the Role of Delays in Environmental and Resource Economics," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 70(4), pages 731-736, August.
    6. Tsigaris, Panagiotis & Wood, Joel, 2019. "The potential impacts of climate change on capital in the 21st century," Ecological Economics, Elsevier, vol. 162(C), pages 74-86.
    7. Anton Bondarev & Alfred Greiner, 2022. "How ongoing structural change creates a double dividend: outdating of technologies and green growth," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 21(2), pages 125-160, May.
    8. Cheng, Chu-chuan & Chen, Ping-ho & Chu, Hsun & Wang, Yi-chiuan, 2024. "What growth policies protect the environment? A two-engine growth model," Journal of Macroeconomics, Elsevier, vol. 81(C).
    9. Yuxiang Zhang & Deqing Tan & Zhi Liu, 2019. "Leasing or Selling? Durable Goods Manufacturer Marketing Model Selection under a Mixed Carbon Trading-and-Tax Policy Scenario," IJERPH, MDPI, vol. 16(2), pages 1-29, January.
    10. Sara Cerasoli & Amilcare Porporato, 2023. "Optimal Resource Allocation for Carbon Mitigation," Sustainability, MDPI, vol. 15(13), pages 1-22, June.
    11. Zaili Zhen & Lixin Tian, 2020. "The impact of climate damage function on the social cost of carbon and economic growth rate," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 25(7), pages 1287-1304, October.
    12. Marie-Catherine Riekhof & Johannes Bröcker, 2017. "Does The Adverse Announcement Effect Of Climate Policy Matter? — A Dynamic General Equilibrium Analysis," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 8(02), pages 1-34, May.

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    More about this item

    Keywords

    Non-Renewable Resource Dynamics; Pollution Di usion Lag; Optimum Growth; Clean Energy; Climate Policy;
    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
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development

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