Climate Change and the Agenda for Research by Ted Hanisch

Author:Ted Hanisch [Hanisch, Ted]
Language: eng
Format: epub
ISBN: 9780429743320
Goodreads: 51860468
Publisher: Routledge
Published: 2019-04-23T00:00:00+00:00

Optimal Emissions Path?

The present policy framework is thus compatible with the broad strategy outlined above. However, some would argue that this strategy is too rigid because it sets a single long-term target (4 GtC annual emissions ceiling) for the second phase. Economists do not like binary solutions (restrain/do not restrain). For example, they analyze market equilibria with supply-demand diagrams that place price on the vertical axis, quantity on the horizontal axis, and identify the optimal production point as the point where a supply curve intersects a demand curve at the unique combination of price and quantity that satisfies both producers and consumers.

A corresponding approach to global warming would seek to identify the optimal time path for carbon emissions, rather than deciding for or against a particular emissions ceiling. In choosing the optimal path, the idea would be that at any point in time there is a social cost curve for abatement (an upward-sloping abatement supply curve) and a corresponding benefits curve (downward-sloping). The abatement cost curve might be low and flat over a certain initial range, but then turn sharply upward. At any point in time the (discounted) marginal benefits of additional abatement should be set equal to marginal costs, to obtain the optimal policy.

Nordhaus (1991, 1992a, 1992b) has been preeminent among economists advocating the identification of an optimal amount of carbon emissions abatement. He has stressed that the initial dose of abatement can be accomplished at very low cost. His choice of parameters and his methodology have led to the conclusion that only a small amount of abatement is economically justified. Thus, in one study he concluded that although CFCs should be largely eliminated, carbon emissions should be cut by only 2 percent from baseline, by imposing a carbon tax no higher than $7.33 per ton (Nordhaus, 1991). For practical purposes, that recommendation was equivalent to doing nothing about the problem. That is, if emissions rise along a path that reaches 49 GtC by 2300 rather than 50 GtC (2 percent reduction), the difference in global warming will be negligible.

In more recent work, Nordhaus (1992a) has concluded that his earlier results were misleading because they used a comparative static approach, whereas the greenhouse problem inherently requires dynamic optimization over an entire time path. He has constructed the DICE model for this purpose (1992b). Nonetheless, his results with the new model are qualititatively similar to his earlier findings that only minimal action is optimal. Specifically, he finds that carbon emissions should be cut by only 10 percent from baseline initially, and only 15 percent by 2100; and that carbon taxes should be held to a range of only $5 to $20 per ton.

The DICE model provides an elegant framework for thinking about the greenhouse problem. It maximizes the discounted sum of utility over time, where per capita utility is a logarithmic function of per capita income, there is discounting for pure time preference, and total ‘utility equals per capita utility multiplied by population. Output is a simple (“Cobb-Douglas”) function of labor (population) and capital stock, augmented by a multiplier that captures technological change.

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