Adaptation Mitigation: What is the Optimal Climate Change Policy Mix?
30 Pages Posted: 7 Apr 2011
Date Written: April 4, 2011
In dealing with climate change, how much should governments focus their effort on mitigation (emission reduction to prevent climate change) and on adaptation (coping with a changed climate)? Very little research has gone into pinning down which strategy is dynamically optimal under what kind of conditions. This paper contributes to this debate by developing a parsimonious optimal control model that focuses on the non-linearity of climate change and the presence of multiple countries. Calibrated simulation results are provided to characterize the model. The results show that the optimal policy mix – or the adoption decision for mitigation and adaptation – is determined by two key parameters: an adjusted mitigation/adaptation cost ratio and the climate change damage elasticity. The latter depends crucially on the non-linearity (suddenness) of climate change. Country heterogeneity influences the policy choice strongly in favour of adaptation.
Keywords: climate change, optimal control theory
JEL Classification: Q54
Suggested Citation: Suggested Citation