Adaptation and Mitigation in Long-term Climate Policy

The paper analytically explores the optimal policy mix between mitigation and environmental adaptation against climate change at a macroeconomic level. The constructed economic-environmental model is formulated as a social planner problem with the adaptation and abatement investments as separate decision variables. The authors prove the existence of a unique steady state and provide a comparative static analysis of the optimal investment. It leads to essential implications for associated long-term environmental policies. In particular, the dependence of the optimal ratio between abatement and adaptation investments on economic efficiency appears to have an inverted U-shape. Data calibration and numerical simulation are provided to illustrate theoretical outcomes.

[1]  T. C. Edens,et al.  Economic Growth , 1957, The Journal of Economic History.

[2]  Jose A. Scheinkman,et al.  Smoothness, Comparative Dynamics, and the Turnpike Property , 1977 .

[3]  M. A. Khan,et al.  Approximate equilibria in markets with indivisible commodities , 1982 .

[4]  The World Bank research observer 7 (2) , 1987 .

[5]  Waclaw Kasprzak,et al.  Dimensional Analysis In The Identification Of Mathematical Models , 1990 .

[6]  Emily C Lawrance.  Poverty and the Rate of Time Preference: Evidence from Panel Data , 1991, Journal of Political Economy.

[7]  R. Gradus,et al.  The trade-off between environmental care and long-term growth—Pollution in three prototype growth models , 1993 .

[8]  Manuel S. Santos.  Smooth dynamics and computation in models of economic growth , 1994 .

[9]  C. Rosenzweig,et al.  Potential impact of climate change on world food supply , 1994, Nature.

[10]  R. Barro,et al.  Inflation and Economic Growth , 1995 .

[11]  Samuel Fankhauser,et al.  Protection versus Retreat: The Economic Costs of Sea-Level Rise , 1995 .

[12]  Elamin H. Elbasha,et al.  On Endogenous Growth: The Implications of Environmental Externalities , 1996 .

[13]  J. A. Smulders,et al.  Environmental quality and pollution-augmenting technological change in a two-sector endogenous growth model , 1995 .

[14]  A. Bovenberg,et al.  Transitional Impacts of Environmental Policy in an Endogenous Growth Model. , 1996 .

[15]  J. A. Smulders,et al.  Pollution abatement and long-term growth , 1996 .

[16]  Christian Gourieroux,et al.  Simulation-based econometric methods , 1996 .

[17]  Kenneth L. Judd,et al.  Solving Large Scale Rational Expectations Models , 1997 .

[18]  Sy-Ming Guu,et al.  Asymptotic methods for aggregate growth models , 1997 .

[19]  Margaret M. Byrne,et al.  Is growth a dirty word? Pollution, abatement and endogenous growth , 1997 .

[20]  Edward L. Glaeser,et al.  The Economics of Cities , 1997 .

[21]  Andrew A. Samwick.  Discount Rate Heterogeneity and Social Security Reform , 1997 .

[22]  Gary W. Yohe,et al.  Sea-Level Change: The Expected Economic Cost of Protection Or Abandonment in the United States , 1998 .

[23]  Nancy L. Stokey.  Are There Limits to Growth , 1998 .

[24]  Natali Hritonenko,et al.  Mathematical Modeling in Economics, Ecology and the Environment , 1999 .

[25]  The Impact of Climate Change on the United States Economy: The impact of global warming on US energy expenditures , 1999 .

[26]  Nico Vellinga.  Multiplicative utility and the influence of environmental care on the short-term economic growth rate , 1999 .

[27]  James E. Neumann,et al.  The Impact of Climate Change on the United States Economy: Frontmatter , 1999 .

[28]  Richard J. T. Klein,et al.  An Anatomy of Adaptation to Climate Change and Variability , 2000 .

[29]  G. Yohe,et al.  Societal Adaptation to Climate Variability and Change: An Introduction , 2000 .

[30]  Larry E. Jones,et al.  Endogenous Policy Choice: The Case of Pollution and Growth , 2001 .

[31]  J. Shogren,et al.  Linking Adaptation and Mitigation in Climate Change Policy , 2000 .

[32]  Cees Withagen,et al.  Accumulative pollution, "clean technology," and policy design , 2000 .

[33]  James Renegar,et al.  A mathematical view of interior-point methods in convex optimization , 2001, MPS-SIAM series on optimization.

[34]  Morten I. Lau,et al.  Estimating Individual Discount Rates in Denmark: A Field Experiment , 2002 .

[35]  Daniel Bienstock,et al.  Potential Function Methods for Approximately Solving Linear Programming Problems: Theory and Practice , 2002 .

[36]  T. Cosimano.  Optimal Experimentation and the Perturbation Method , 2003 .

[37]  Bruce A. McCarl,et al.  U.S. Agriculture and Climate Change: New Results , 2003 .

[38]  B. McCarl,et al.  The Effects of Spatial Scale of Climate Scenarios on Economic Assessments: An Example from U.S. Agriculture , 2003 .

[39]  D. Sailor,et al.  Air conditioning market saturation and long-term response of residential cooling energy demand to climate change , 2003 .

[40]  Jean-Charles Régin,et al.  Integration of AI and OR Techniques in Constraint Programming for Combinatorial Optimization Problems , 2004, Lecture Notes in Computer Science.

[41]  J. Braden,et al.  Total factor productivity and the environmental Kuznets curve , 2005 .

[42]  Natali Hritonenko,et al.  Turnpike and Optimal Trajectories in Integral Dynamic Models with Endogenous Delay , 2005 .

[43]  E. Mansur,et al.  A Discrete-Continuous Choice Model of Climate Change Impacts on Energy , 2005 .

[44]  R. Nicholls,et al.  Impacts and responses to sea-level rise: a global analysis of the SRES scenarios over the twenty-first century , 2006, Philosophical Transactions of the Royal Society A: Mathematical, Physical and Engineering Sciences.

[45]  F. Wagener.  Skiba Points for Small Discount Rates , 2006 .

[46]  J. Dutoit.  The Fourth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC) , 2007 .

[47]  M. Saier,et al.  Climate Change, 2007 , 2007 .

[48]  Richard S. J. Tol,et al.  AD-DICE: An Implementation of Adaptation in the DICE Mode , 2007 .

[49]  O. Edenhofer,et al.  Mitigation from a cross-sectoral perspective , 2007 .

[50]  W. Pohlmeier,et al.  High frequency financial econometrics : recent developments , 2007 .

[51]  T. Cosimano.  Optimal experimentation and the perturbation method in the neighborhood of the augmented linear regulator problem , 2008 .

[52]  Nicolas Gillis,et al.  Nonnegative Factorization and The Maximum Edge Biclique Problem , 2008, 0810.4225.

[53]  Raouf Boucekkine,et al.  Optimal firm behavior under environmental constraints , 2008 .

[54]  B. Hirtle.  Credit Derivatives and Bank Credit Supply , 2008 .

[55]  M. Ruth,et al.  Interdependencies of urban climate change impacts and adaptation strategies: a case study of Metropolitan Boston USA , 2008 .

[56]  A. Philippopoulos,et al.  Growth enhancing policy is the means to sustain the environment , 2008 .

[57]  Jacques-François Thisse,et al.  Economic Geography: The Integration of Regions and Nations , 2008 .

[58]  Shardul Agrawala,et al.  Economic Aspects of Adaptation to Climate Change: Costs, Benefits and Policy Instruments , 2008 .

[59]  Thomas Baudin,et al.  Family Policies: What Does the Standard Endogenous Fertility Model Tell Us? , 2011 .

[60]  R. Dellink,et al.  Economic aspects of adaptation to climate change: integrated assessment modelling of adaptation costs and benefits , 2009 .

[61]  Growth, welfare and transitional dynamics in an endogenously growing economy with abatement labor , 2009 .

[62]  The range of global estimates. , 2009 .

[63]  D. Fielding,et al.  Health, Wealth, Fertility, Education, and Inequality , 2009 .

[64]  C. Carraro,et al.  An Analysis of Adaptation as a Response to Climate Change , 2009 .

[65]  P. Pestieau,et al.  Fertility, Human Capital Accumulation, and the Pension System , 2009, SSRN Electronic Journal.

[66]  Yurii Nesterov,et al.  Solving Infinite-dimensional Optimization Problems by Polynomial Approximation , 2010 .

[67]  G. Oggioni,et al.  Generalized Nash Equilibrium and market coupling in the European power system , 2010 .

[68]  C. Carraro,et al.  Climate Policy and the Optimal Balance between Mitigation, Adaptation and Unavoided Damage , 2010 .

[69]  M. Jünger,et al.  50 Years of Integer Programming 1958-2008 - From the Early Years to the State-of-the-Art , 2010 .

[70]  Yves Smeers,et al.  Stochastic Equilibrium Models for Generation Capacity Expansion , 2010 .

[71]  J. Rombouts,et al.  Option Pricing with Asymmetric Heteroskedastic Normal Mixture Models , 2010 .

[72]  K. Strzepek,et al.  The Costs to Developing Countries of Adapting to Climate Change. New Methods and Estimates. , 2010 .

[73]  Pierre Pestieau,et al.  The economics of wealth transfer tax , 2010 .

[74]  Rüdiger Stephan,et al.  An extension of disjunctive programming and its impact for compact tree formulations , 2010, 1007.1136.

[75]  Thierry Bréchet,et al.  Technological greening, eco-efficiency and no-regret strategy , 2010 .

[76]  T. Baudin.  The optimal trade-off between quality and quantity with uncertain child survival , 2010 .

[77]  Jean-Pierre Florens,et al.  Nonparametric frontier estimation from noisy data , 2010 .

[78]  F. Lecocq,et al.  To Mitigate or to Adapt : Is that the Question? Observations on an Appropriate Response to the Climate Change Challenge to Development Strategies , 2010 .

[79]  Axel Pierru,et al.  Uncertain long-run emissions targets, CO2 price and global energy transition: a general equilibrium approach , 2010 .

[80]  Leandro S. Carvalho.  Poverty and Time Preference , 2010 .

[81]  Y. Nesterov,et al.  Double smoothing technique for infinite-dimensional optimization problems with applications to optimal control , 2010 .

[82]  G. Oggioni,et al.  Market coupling and the organization of counter-trading: separating energy and transmission again? , 2010 .

[83]  K. Munk.  The Optimal Commodity Tax System as a Compromise between Two Objectives , 2010 .

[84]  Paul Belleflamme,et al.  Industrial Organization: Markets and Strategies , 2010 .

[85]  Michel Denuit,et al.  Multivariate Concave and Convex Stochastic Dominance , 2010 .

[86]  J. Carpantier.  Commodities inventory effect , 2010 .

[87]  S. Laurent,et al.  On the Forecasting Accuracy of Multivariate GARCH Models , 2010 .

[88]  A. Millner,et al.  Adaptation to Climate Change and Economic Growth in Developing Countries , 2011 .

[89]  G. Stephan,et al.  To mitigate or to adapt: How to confront global climate change , 2011 .

[90]  Laurence A. Wolsey,et al.  Mixing Sets Linked by Bidirected Paths , 2011, SIAM J. Optim..

[91]  P. Pestieau,et al.  Myopia, redistribution and pensions , 2011 .

[92]  Thierry Bréchet,et al.  The Benefits of Cooperation Under Uncertainty: the Case of Climate Change , 2011, Environmental Modeling & Assessment.

[93]  N. Hritonenko,et al.  Scarcity, regulation and endogenous technical progress , 2011 .

[94]  L. Bretschger,et al.  Climate Change and Uneven Development , 2011 .

[95]  Axel Gautier,et al.  Universal Service Financing in Competitive Postal Markets: One Size Does Not Fit All , 2011 .

[96]  C. Carraro,et al.  Adapting to climate change. Costs, benefits, and modelling approaches. , 2011 .

[97]  Ida Bagus Handianto.  PELAKSANAAN HASIL KONVENSI PERUBAHAN IKLIM United Nations Framework Convention on Climate Change (UNFCCC) DI BALI TAHUN 2007 TERHADAP LINGKUNGAN HIDUP DI INDONESIA , 2011 .

[98]  Pierre Pestieau,et al.  The impact of a minimum pension on old age poverty and its budgetary cost. Evidence from Latin America , 2011 .

[99]  Nicolas Gillis,et al.  On the Geometric Interpretation of the Nonnegative Rank , 2010, 1009.0880.

[100]  Natali Hritonenko,et al.  Energy substitutability and modernization of energy-consuming technologies , 2012 .

[101]  Nicolas Gillis,et al.  A multilevel approach for nonnegative matrix factorization , 2010, J. Comput. Appl. Math..

[102]  Axel Gautier,et al.  Competitively neutral universal service obligations , 2012, Inf. Econ. Policy.

[103]  F. Lecocq,et al.  To Mitigate or to Adapt , 2012 .

[104]  Geir B. Asheim,et al.  Justifying Social Discounting: The Rank-Discounted Utilitarian Approach , 2010, J. Econ. Theory.

[105]  Andrea Silvestrini,et al.  Aggregation of exponential smoothing processes with an application to portfolio risk evaluation , 2013 .