The consequences of irreversibility on optimal intertemporal emission policies under uncertainty

Thomas Dangl () and Franz Wirl

Central European Journal of Operations Research, 2007, vol. 15, issue 2, 143-166

Abstract: This paper investigates how irreversibility affects optimal intertemporal emission policies when negative stock externalities exist. In particular it discusses the effect of irreversible emission, i.e., it concerns the physical issue whether it is possible to recollect pollutants that have been emitted or not. We depict our analysis with the greenhouse effect as a topical example and model the uncertainty with respect to the future evolution of the world’s temperature (i.e., the uncertain factor that determines the costs) as Itô-process with the drift provided by current carbon-dioxide emissions. We show analytically that irreversibility affects the optimal emission policy only if the future impact of today’s emissions is uncertain. Under uncertainty, irreversibility leads to a conservationist policy such that emissions are reduced at any level of environmental concentration of the pollutant. The level where stopping emissions is optimal decreases in the presence of irreversibility. Furthermore, the expected duration of fossil fuel use is derived. A numerical example which is calibrated to roughly reflect the global CO 2 problem illustrates the analytical findings. Copyright Springer-Verlag 2007

Keywords: Optimal taxation; Optimal resource allocation; Q48; D81; C61 (search for similar items in EconPapers)
Date: 2007
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://hdl.handle.net/10.1007/s10100-007-0023-1 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:cejnor:v:15:y:2007:i:2:p:143-166

Ordering information: This journal article can be ordered from
http://www.springer. ... search/journal/10100

DOI: 10.1007/s10100-007-0023-1

Access Statistics for this article

Central European Journal of Operations Research is currently edited by Ulrike Leopold-Wildburger

More articles in Central European Journal of Operations Research from Springer, Slovak Society for Operations Research, Hungarian Operational Research Society, Czech Society for Operations Research, Österr. Gesellschaft für Operations Research (ÖGOR), Slovenian Society Informatika - Section for Operational Research, Croatian Operational Research Society
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().