Optimal Control of a Global Model of Climate Change with Adaptation and Mitigation

21 Pages Posted: 14 Jan 2019

See all articles by Manoj Atolia

Manoj Atolia

Florida State University - Department of Economics

Prakash Loungani

International Monetary Fund (IMF)

Helmut Maurer

University of Muenster

Willi Semmler

The New School - Department of Economics; Universitaet Bielefeld; IIASA

Date Written: December 2018

Abstract

The Integrated Assessment Model (IAM) has extensively treated the adverse effects of climatechange and the appropriate mitigation policy. We extend such a model to include optimalpolicies for mitigation, adaptation and infrastructure investment studying the dynamics of thetransition to a low fossil-fuel economy. We focus on the adverse effects of increase inatmospheric CO2 concentration on households. Formally, the model gives rise to an optimalcontrol problem of finite horizon consisting of a dynamic system with five-dimensional statevector consisting of stocks of private capital, green capital, public capital, stock of brownenergy in the ground, and emissions. Given the numerous challenges to climate change policiesthe control vector is also five-dimensional. Our solutions are characterized by turnpikeproperty and the optimal policy that accomplishes the objective of keeping the CO2 levelswithin bound is characterized by a significant proportion of investment in public capital goingto mitigation in the initial periods. When initial levels of CO2 are high, adaptation efforts alsostart immediately, but during the initial period, they account for a smaller proportion ofgovernment's public investment.

Keywords: Fiscal policy, Climate Change, Optimal Control, Environmental Economics, Environmental Economics: Government Policy

JEL Classification: C61, Q54, Q58

Suggested Citation

Atolia, Manoj and Loungani, Prakash and Maurer, Helmut and Semmler, Willi, Optimal Control of a Global Model of Climate Change with Adaptation and Mitigation (December 2018). IMF Working Paper No. 18/270. Available at SSRN: https://ssrn.com/abstract=3314603

Manoj Atolia (Contact Author)

Florida State University - Department of Economics ( email )

Tallahassee, FL 30306-2180
United States
+1.850.644.7088 (Phone)
+1.850.644.4535 (Fax)

HOME PAGE: http://mailer.fsu.edu/~matolia/

Prakash Loungani

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-7043 (Phone)
202-623-4740 (Fax)

Helmut Maurer

University of Muenster

Schlossplatz 2
Muenster, D-48149
Germany

Willi Semmler

The New School - Department of Economics ( email )

65 Fifth Avenue
New York, NY 10003
United States

HOME PAGE: http://www.newschool.edu/nssr/faculty/?id=4e54-6b79-4e41-3d3d

Universitaet Bielefeld ( email )

Universit├Ątsstra├če 25
Bielefeld, NRW
Germany

IIASA ( email )

Schlossplatz 1
Laxenburg/Austria, A-2361
Austria

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