Dynamic determinants of optimal global climate policy

Michael Grubb, Rutger-Jan Lange, Nicolas Cerkez, Claudia Wieners, Ida Sognnaes and Pablo Salas
Additional contact information
Michael Grubb: Institute for Sustainable Resources, UCL
Nicolas Cerkez: Department of Economics, UCL
Claudia Wieners: Institute for Marine and Athmospheric Research, University of Utrecht
Ida Sognnaes: Center for International Climate Research
Pablo Salas: International Finance Corperation

No 23-063/VI, Tinbergen Institute Discussion Papers from Tinbergen Institute

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: abatement; DICE; energy economics; inertia; innovation; path dependence; transition (search for similar items in EconPapers)
JEL-codes: C61 O30 Q54 (search for similar items in EconPapers)
Date: 2020-12-21, Revised 2024-08-01
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Journal Article: Dynamic determinants of optimal global climate policy (2024)
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