Energy Balance Climate Models and the Spatial Structure of Optimal Mitigation Policies

44 Pages Posted: 16 Feb 2012  

William A. Brock

University of Wisconsin, Madison - Department of Economics; University of Missouri at Columbia - Department of Economics

Gustav Engstrom

The Beijer Institute of Ecological Economics

Anastasios Xepapadeas

Athens University of Economics and Business; University of Bologna - School of Economics, Management, and Statistics

Date Written: February 15, 2012

Abstract

We develop a one-dimensional energy balance climate model with heat transportation across locations. We introduce the concept of potential world GDP at time t, and we introduce, through the temperature function, spatial characteristics into the damage function which make damages latitude dependent. We solve the social planner’s problem and characterize the competitive equilibrium. We define optimal taxes on fossil fuels and profit taxes on firms that extract fossil fuels. Our results suggest that if the implementation of international transfers across latitudes is not possible, then optimal taxes are spatially non homogeneous and tend to be lower at the poor latitudes. The degree of spatial differentiation of optimal taxes depend on heat transportation. We also locate sufficient conditions for optimal mitigation policies to have rapid ramp-up initially and then decrease over time. By employing the properties of the spatial model and approximating solutions, we show how to study the impact of thermal transport across latitudes on welfare inequality.

Keywords: energy balance climate models, heat diffusion, temperature distribution, spatial optimal taxes

JEL Classification: Q54, Q58

Suggested Citation

Brock, William A. and Engstrom, Gustav and Xepapadeas, Anastasios, Energy Balance Climate Models and the Spatial Structure of Optimal Mitigation Policies (February 15, 2012). FEEM Working Paper No. 5.2012. Available at SSRN: https://ssrn.com/abstract=2005650 or http://dx.doi.org/10.2139/ssrn.2005650

William A. Brock (Contact Author)

University of Wisconsin, Madison - Department of Economics ( email )

1180 Observatory Drive
Madison, WI 53706
United States
608-263-6655 (Phone)
608-263-3876 (Fax)

University of Missouri at Columbia - Department of Economics ( email )

118 Professional Building
Columbia, MO 65211
United States

Gustav Engstrom

The Beijer Institute of Ecological Economics ( email )

Stockholm, SE-104 05
Sweden

Anastasios Xepapadeas

Athens University of Economics and Business ( email )

76 Patission Street
Athens, 104 34
Greece

University of Bologna - School of Economics, Management, and Statistics ( email )

Piazza Scaravilli 1
40126 Bologna, fc 47100
Italy

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