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Tipping Points in a Dynamic Stochastic IAM

18 Pages Posted: 27 Jan 2012  

Thomas S. Lontzek

University of Zurich; Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP)

Yongyang Cai

Ohio State University (OSU); Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP)

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)

Date Written: January 18, 2012

Abstract

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.

Keywords: Climate change policy and uncertainty, discounting abrupt and irreversible climate change, tipping points, stochastic IAM

JEL Classification: C63, Q54, D81

Suggested Citation

Lontzek, Thomas S. and Cai, Yongyang and Judd, Kenneth L., Tipping Points in a Dynamic Stochastic IAM (January 18, 2012). RDCEP Working Paper No. 12-03. Available at SSRN: https://ssrn.com/abstract=1992660 or http://dx.doi.org/10.2139/ssrn.1992660

Thomas S. Lontzek (Contact Author)

University of Zurich ( email )

Switzerland

Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP) ( email )

5735 S. Ellis Street
Chicago, IL 60637
United States

Yongyang Cai

Ohio State University (OSU) ( email )

Blankenship Hall-2010
901 Woody Hayes Drive
Columbus, OH OH 43210
United States

Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP) ( email )

5735 S. Ellis Street
Chicago, IL 60637
United States

Kenneth L. Judd

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Stanford University - The Hoover Institution on War, Revolution and Peace ( email )

Stanford, CA 94305-6010
United States

Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP) ( email )

5735 S. Ellis Street
Chicago, IL 60637
United States

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