Dynamic determinants of optimal global climate policy

Michael Grubb, Rutger-Jan Lange, Nicolas Cerkez, Ida Sognnaes, Claudia Wieners and Pablo Salas

Structural Change and Economic Dynamics, 2024, vol. 71, issue C, 490-508

Abstract: We explore the impact of dynamic characteristics of greenhouse-gas emitting systems, such as inertia, induced innovation, and path-dependency, on optimal responses to climate change. Our compact and analytically tractable model, applied with stylized damage assumptions to derive optimal pathways, highlights how simple dynamic parameters affect responses including the optimal current effort and the cost of delay. The conventional cost-benefit result (i.e., an optimal policy with rising marginal costs that reflects discounted climate damages) arises only as a special case in which the dynamic characteristics of emitting systems are assumed to be insignificant. Our analysis highlights and distinguishes from the (often implicit) assumption in many cost-benefit models, which neglect inertia and assume exogenous technology progress. This tends to defer action. More generally, our model yields useful policy insights for the transition to deep decarbonization, showing that enhanced early action may greatly reduce both damages and abatement costs in the long run.

Keywords: Climate Change; Optimal abatement; Induced innovation; Path dependence; Globalcost-benefit (search for similar items in EconPapers)
JEL-codes: C61 O30 Q54 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:streco:v:71:y:2024:i:c:p:490-508

DOI: 10.1016/j.strueco.2024.07.005

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