Robust dynamic energy use and climate change

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dc.citation.firstpage821
dc.citation.issueNumber3
dc.citation.journalTitleQuantitative Economics
dc.citation.lastpage857
dc.citation.volumeNumber7
dc.contributor.authorLi, Xin
dc.contributor.authorNarajabad, Borghan
dc.contributor.authorTemzelides, Ted
dc.contributor.orgJames A. Baker III Institute for Public Policy
dc.date.accessioned2017-05-19T20:48:13Z
dc.date.available2017-05-19T20:48:13Z
dc.date.issued2016
dc.description.abstractWe study a dynamic stochastic general equilibrium model in which agents are concerned about model uncertainty regarding climate change. An externality from greenhouse gas emissions damages the economy's capital stock. We assume that the mapping from climate change to damages is subject to uncertainty, as opposed to risk, and we use robust control to study efficiency and optimal policy. We obtain a sharp analytical solution for the implied environmental externality and characterize dynamic optimal taxation. The optimal tax that restores the socially optimal allocation is Pigouvian. We study optimal output growth in the presence and in the absence of concerns about model uncertainty, and find that these can lead to substantially different conclusions regarding the optimal emissions and the optimal mix of fossil fuel. In particular, the optimal use of coal will be significantly lower on a robust path, while the optimal use of oil/gas will edge down.
dc.identifier.citationLi, Xin, Narajabad, Borghan and Temzelides, Ted. "Robust dynamic energy use and climate change." <i>Quantitative Economics,</i> 7, no. 3 (2016) Wiley: 821-857. https://doi.org/10.3982/QE463.
dc.identifier.doihttps://doi.org/10.3982/QE463
dc.identifier.urihttps://hdl.handle.net/1911/94308
dc.language.isoeng
dc.publisherWiley
dc.rightsLicensed under the Creative Commons Attribution-NonCommercial License 3.0
dc.rights.urihttps://creativecommons.org/licenses/by-nc/3.0/us/
dc.titleRobust dynamic energy use and climate change
dc.typeJournal article
dc.type.dcmiText
dc.type.publicationpublisher version
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