Working Paper #2016-010
On the optimum timing of the global carbon-transition under conditions of extreme weather-related damages: further green paradoxical results
An optimal growth model is constructed in a context of irreversible
investment in different concurrent production technologies in order to
study the optimum timing of the various stages that can be identified in
the transition from a carbon-based economy to a carbon-free economy.
Such a transition is necessary to avoid runaway global warming. The
model is based on the AK-model by Rebelo (1991) and uses multi-stage
optimal control methods to illustrate the importance of the notion of
capital goods as a produced means of production and as the physical
carriers/manifestations of different technologies for the timing and
intensity of the use of carbon-based and carbon-free technologies during
a just-in-time transition. The transition needs to happen within a given
cumulative emissions constraint in order to avoid runaway global warming
and corresponding runaway welfare losses. It is shown that the
expectation of extreme weather-related damages in such a setting may
induce a welfare maximizing central planner to step-up carbon-based
production rather than reducing such activity, for similar reasons as
the green paradox arises. A further paradoxical result is that increases
in the productivity of carbon-free technologies relative to carbon-based
technologies do not necessarily imply an earlier phasing in of those
carbon-free technologies, but rather allow for a more gradual (and more
prolonged) transition towards a carbon-free future. Finally, it is shown
that having a productive carbon-based production system facilitates the
transition towards a carbon-free system, i.e. investment in carbon
intensive technologies may be an effective instrument in securing a
carbon-free future.
- Keywords
-
- Energy transition
- global warming
- climate tipping point
- optimal timing of investment and production
- multi-stage optimal control
- JEL codes
-
- O1
- O21
- O44
Cite this as
APA 7th ed.van Zon, A. (2016). On the optimum timing of the global carbon-transition under conditions of extreme weather-related damages: further green paradoxical results (UNU-MERIT Working Paper No. 2016-010). UNU-MERIT. https://unu-merit.nl/publications/working-papers/abstract/?id=5951