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Growth and adaptation to climate change in the long run

Simon Dietz and Bruno Lanz

No 19-09, IRENE Working Papers from IRENE Institute of Economic Research

Abstract: As the climate changes, economies are adapting through innovation, demography and structural change. However, adaptation is costly, so reducing future greenhouse gas emissions can improve welfare substantially. To document this, we employ 1960 to 2015 data for the world economy to structurally estimate a Schumpeterian growth model that includes an explicit agriculture sector, endogenous fertility, directed technical change in fossil/renewable energy and climate change feedback. Solving the estimated model for a counterfactual past without climate change, we provide novel evidence on the welfare cost of climate change and isolate the role of different adaptation mechanisms. We then compute the welfare cost of adaptation and optimal carbon taxes over the 21st century.

Keywords: economic growth; adaptation; climate change; directed technical change; structural change; population growth; agricultural productivity; energy; structural estimation (search for similar items in EconPapers)
JEL-codes: C51 O13 O44 Q54 (search for similar items in EconPapers)
Pages: 54 pages.
Date: 2019-11
New Economics Papers: this item is included in nep-agr, nep-env and nep-gro
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