Tipping Points in a Dynamic Stochastic IAM
Thomas S. Lontzek
University of Zurich; Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP)
Stanford University - The Hoover Institution on War, Revolution and Peace; Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP); University of Chicago - Becker Friedman Institute
Kenneth L. Judd
Stanford University - The Hoover Institution on War, Revolution and Peace; Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP); National Bureau of Economic Research (NBER)
January 18, 2012
RDCEP Working Paper No. 12-03
We use a dynamic stochastic general equilibrium model of integrated climate and economy (DSICE) to account for abrupt and irreversible climate change. We model a climate shock in the form of a stochastic tipping point. We investigate the impact of the tipping point externality on optimal mitigation policy.
We conclude that the optimal mitigation policy depends on the dynamic pattern of the impact. In the case of abrupt and irreversible climate change with a permanent impact, the optimal policy implies a constant anti-tipping effort to prevent the catastrophe, calling for immediate limitations on emissions.
Number of Pages in PDF File: 18
Keywords: Climate change policy and uncertainty, discounting abrupt and irreversible climate change, tipping points, stochastic IAM
JEL Classification: C63, Q54, D81
Date posted: January 27, 2012
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