Financing Climate Change Policies: A Multi-Phase Integrated Assessment Model for Mitigation and Adaptation
38 Pages Posted: 6 Jun 2019
Date Written: December 9, 2018
We present an extended integrated assessment model (IAM) that optimizes climate financing policies over multiple phases of discrete policy action. We build on Semmler et al. (2018) which develops a single-phase model of the optimal allocation of infrastructure expenditure to carbon-neutral physical capital, climate change adaptation, and emissions mitigation. That model is solved via the nonlinear programming method AMPL. A new algorithm, the arc-parameterization method (APM), allows us to extend the model to multiple regimes, operationalized through a 3-phase policy policy environment. The first policy regime is defined by a limited set of policy tools. In the second regime, green bonds (i.e., climate-focused financing) are introduced, and increase the use of mitigation and adaptation policies. In the final regime, green bonds are repaid with a new tax. We demonstrate that this multi-phase model incorporating climate, fiscal and financial policies is Pareto superior to single-phase models.
Keywords: Climate Change, Multi-phase Fiscal and Financial Policies, IAM with Optimal Control, Environmental Economics
JEL Classification: C61, Q54, Q58, H5
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