A Hotelling model with a ceiling on the stock of pollution

Chakravorty, Ujjayant; Magné, Bertrand; Moreaux, Michel

doi:10.1016/j.jedc.2005.09.008

Cited by 100 publications

(63 citation statements)

References 21 publications

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“…This model has been extensively applied in resource economics (Dasgupta and Heal 1974) to derive the optimal price path of an exhaustible resource over time. Given that a carbon budget is conceptually similar to an exhaustible resource, it has hence been applied to derive optimal emission prices and in general optimal policies with stock pollutants (Tahvonen 1997, Chakravorty et al 2006, Gollier 2018, Dietz and Venmans 2019 Then, we use a numerical DP-IAM with a richer process detail including different carbon dioxide removal (CDR) assumptions, which have been shown to be crucial for low temperature targets (Tavoni and Socolow 2013, IPCC 2018, van Vuuren et al 2018, Obersteiner et al 2018, allowing us to quantify the effects of discounting under alternative assumptions about negative emissions.…”

Section: Introductionmentioning

confidence: 99%

The role of the discount rate for emission pathways and negative emissions

Emmerling

Drouet

Wijst

et al. 2019

Environ. Res. Lett.

106

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The importance of the discount rate in cost-benefit analysis of long term problems, such as climate change, has been widely acknowledged. However, the choice of the discount rate is hardly discussed when translating policy targets-such as 1.5°C and 2°C-into emission reduction strategies with the possibility of overshoot. Integrated assessment models (IAMs) have quantified the sensitivity of low carbon pathways to a series of factors, including economic and population growth, national and international climate policies, and the availability of low carbon technologies, including negative emissions. In this paper we show how and to what extent emission pathways are also influenced by the discount rate. Using both an analytical and a numerical IAM, we demonstrate how discounting affects key mitigation indicators, such as the time when net global emissions reach zero, the amount of carbon budget overshoot, and the carbon price profile. To ensure inter-generational equity and be coherent with cost-benefit analysis normative choices, we suggest that IAMs should use lower discount rates than the ones currently adopted. For a 1000 GtCO 2 carbon budget, reducing the discount rate from 5% to 2% would more than double today's carbon price (from 21 to 55 $/tCO 2 ) and more than halve the carbon budget overshoot (from 46% to 16%), corresponding to a reduction of about 300 GtCO 2 of net negative emissions over the century.

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Section: Introductionmentioning

confidence: 99%

The role of the discount rate for emission pathways and negative emissions

Emmerling

Drouet

Wijst

et al. 2019

Environ. Res. Lett.

106

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“…Following an approach pioneered by Chakravorty et al (2006), we assume that pollution does not harm directly welfare but be crossed over some pollution concentration threshold, the earth climate conditions would become catastrophic. Let G(t) ≡ S(t) + Z(t) be the global pollution stock level at time t and G be the catastrophic threshold.…”

Section: The Modelmentioning

confidence: 99%

“…5 To avoid the catastrophe, the objective of an environmental policy is to maintain the atmospheric carbon concentration below the critical level. This approach has been extensively explored by Chakravorty et al (2006Chakravorty et al ( , 2008. Amigues et al (2011) have shown that taking into account damages increasing with the pollution stock, for stocks smaller than the critical threshold, does not change the main qualitative properties of the optimal paths.…”

Section: Introductionmentioning

confidence: 99%

The atmospheric carbon resilience problem: A theoretical analysis

Amigues

Moreaux

2013

Resource and Energy Economics

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a b s t r a c tWe study a dynamic carbon pollution model where carbon accumulates both inside a nonrenewable and a renewable reservoir with a constant regeneration rate. Two primary energy sources are available: a cheap exhaustible fossil fuel (coal) and an expensive clean energy alternative (solar). To avoid catastrophic climate events, the global carbon concentration has to remain below some critical mandated ceiling. We show that there exists an upper bound on the coal endowment that can be consumed, which distinguishes two main cases: coal is initially abundant or scarce. If the energy sector has to provide a constant aggregate energy flow to the final users, costeffectiveness requires that the global ceiling should be attained only when solar energy is introduced. Then the economy stays forever at the ceiling and coal use is progressively replaced by solar energy use. In the abundant coal case, this energy sources substitution process lasts for an infinite duration while in the scarce coal case, coal exploitation ends in finite time. Under a welfare maximization criterion, if coal is abundant, we show that the economy may follow a sequence of phases at the ceiling and below the ceiling before the final transition towards clean energy.

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“…Chakravorty et al. () find that a ceiling on the stock of pollution can give rise to simultaneous use without a flow dependent fossil fuel extraction cost function.…”

mentioning

confidence: 99%

Unilateral climate policy and the green paradox: Extraction costs matter

Kollenbach

2019

Canadian J of Economics

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I analyze the effect of unilateral climate policies in a two-country model where fossil fuel extraction costs depend on both current extraction and remaining stock and where a constant marginal-cost clean substitute is available. An intensification of climate policy in the country with an initially stricter policy does not increase early fossil fuel extraction (i.e., there is no "weak green paradox") or the present value of pollution costs (i.e., there is no "strong green paradox") if energy demand in that country is initially met with a mix of fossil fuel and a substitute. Whether a stricter climate policy in the country with an initially laxer policy causes a weak green paradox depends on the price elasticity of energy demand and the strength of the flow and stock dependence of extraction costs. If the reduction of total extraction is sufficiently strong, it overcompensates for a weak green paradox with respect to pollution costs. Thus, a weak green paradox does not necessarily imply a strong green paradox, due to stock dependence. Corresponding author: Gilbert Kollenbach, Gilbert.Kollenbach@Fernuni-Hagen.de I would like to thank Thomas Eichner, Rüdiger Pethig and Benjamin Florian Siggelkow for useful notes and comments. Anonymous reviewers have also given very valuable advice. Any remaining errors are the author's sole responsibility. 8 The complementary slackness conditions are ζχ(t) ≥ 0, ζχ(t)χ(t) = 0 and ζg(t) ≥ 0, ζg(t)g(t) = 0.9 See Feichtinger and Hartl (1986, Satz 7.6). See also Seierstad and Sydsaeter (1987, p. 337, theorem 4). T = 0 is ruled out by assumption.

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A Hotelling model with a ceiling on the stock of pollution

Cited by 100 publications

References 21 publications

The role of the discount rate for emission pathways and negative emissions

The role of the discount rate for emission pathways and negative emissions

The atmospheric carbon resilience problem: A theoretical analysis

Unilateral climate policy and the green paradox: Extraction costs matter

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