Econ II - Session 10 Flashcards
Four links between growth and climate economics
- Climate damages (negative impact on the economy)
- Discount rate (we require a growth famework)
- Stock-flow problems (of capital & GHG)
- Climate policy: de-growth?
How to find the optimal point of GHG emissions?
- Derive the cost of mitigation-curve
- Derive the benefits of mitigation-curve
–> Where both cross
Objective function: Net benefits of mitigation
NB(M) = B(M) - C(M)
M: level of emission mitigation (abatement)
Acemoglu model / argument
European colonialists installed different types of institutions:
- Settlement: Institutions that allow sustainable economics and prosperity
- Extraction: Institutions that allow appropriating a maximum of resources in a minimum of time
Decicive point: If Europeans die (from diseases etc) or survive once arrived in the colony
What’s the optimal level of something, e.g. emission mitigation?
Optimal level of emissions?
Optimal level of climate policy?
Where marginal costs equal marginal benefits.
Optimal level of emissions: Where one additional ton of emissions causes the same damage as avoiding that ton of emissions costs
Optimal level of climate policy: Where one ton additional abatement has the same cost as it brings in terms of avoided damages from climate change.
The ‘Kaya identity’
co2 emissions = Population * per capita income * energy intensity of production * carbon intensity of energy
Benefit function
Damage function
Law of motion
Benefit function: 𝐵 = 𝐵(𝐸𝑡)
E: cheap energy
Damage function: 𝐷 = 𝐷(𝑆𝑡)
S: atmospheric GHG stock
Law of motion: 𝑆𝑡 − 𝑆𝑡-1 =𝐸𝑡 − 𝜃𝑆𝑡
The stock accumulates from emissions and is reduced by decay.
Three examples of stock-flow (accumulation) problems
- Environmental stock externalities, such as ozone depletion or climate change.
- Capital accumulation (investments, depreciation…)
- Resource depletion
