All Inclusive Climate Policy in a Growing Economy: The Role of Human Health

Lucas Bretschger and Evgenij Komarov ()
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Evgenij Komarov: Research at ETH Zurich

Environmental & Resource Economics, 2024, vol. 87, issue 12, No 5, 3205-3234

Abstract: Abstract Standard climate economics considers damages of climate change to utility, total factor productivity, and capital. Highlighting that air pollution and climate change affect human health and labor productivity significantly, we complement this literature by including human health in a theoretical climate economic framework. Our macroeconomic approach incorporates a separate health sector and provides closed-form analytical solutions for the main model variables. Economic growth is endogenously driven by innovations, which depend on labor availability and productivity. These aspects of the labor force are directly linked to human health, which is harmed by burning fossil fuels. We calculate growth in the decentralized equilibrium and derive optimal climate policy. Calibrating the model by taking standard parameter values we show the economic growth rate to be higher for the planner solution compared to the market outcome. For an optimal climate policy, we find that 44% of total resource stock should be extracted when considering damages to capital, but only 1% of the stock should be extracted in an “all inclusive” approach where health damages are included. The health perspective requires optimal environmental policies that are much more stringent than those normally advocated in climate economics, since harm to human health has negative effects on economic growth, which makes the overall impact of climate change very large.

Keywords: Optimal climate policy; Human health; Climate damages; Optimum resource stock (search for similar items in EconPapers)
JEL-codes: I15 Q32 Q54 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10640-024-00910-w

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