Climate Policy Under Cooperation and Competition between Regions with Spatial Heat Transport

60 Pages Posted: 2 Apr 2018 Last revised: 16 May 2021

See all articles by Yongyang Cai

Yongyang Cai

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

William A. Brock

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

Anastasios Xepapadeas

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

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: March 2018

Abstract

We build a novel stochastic dynamic regional integrated assessment model (IAM) of the climate and economic system including a number of important climate science elements that are missing in most IAMs. These elements are spatial heat transport from the Equator to the Poles, sea level rise, permafrost thaw and tipping points. We study optimal policies under cooperation and noncooperation between two regions (the North and the Tropic-South) in the face of risks and recursive utility. We introduce a new general computational algorithm to find feedback Nash equilibrium. Our results suggest that when the elements of climate science are ignored, important policy variables such as the optimal regional carbon tax and adaptation could be seriously biased. We also find the regional carbon tax is significantly smaller in the feedback Nash equilibrium than in the social planner’s problem in each region, and the North has higher carbon taxes than the Tropic-South.

Suggested Citation

Cai, Yongyang and Brock, William A. and Xepapadeas, Anastasios and Judd, Kenneth L., Climate Policy Under Cooperation and Competition between Regions with Spatial Heat Transport (March 2018). NBER Working Paper No. w24473, Available at SSRN: https://ssrn.com/abstract=3154233

Yongyang Cai (Contact Author)

Ohio State University (OSU) ( email )

Department of Agricultural, Environmental
and Development Economics
Columbus, OH 43210
United States

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

5735 S. Ellis Street
Chicago, IL 60637
United States

William A. Brock

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

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

Kenneth L. Judd

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

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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