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Climate Policy: Costs and Design

A survey of some recent numerical studies

image of Climate Policy: Costs and Design

There is a large and growing literature focusing on economic issues related to climate change and climate policies. This report presents a discussion of some of the recent studies. The focus is on various numerical analyses and not on the purely theoretical studies. The following questions are discussed in the report: What will the development of greenhouse gas emissions be and what climate changes will follow if no new policies are introduced? What can economic analyses tell us about climate policy goals? What are the costs of reducing emissions? What types of policies should be used to reduce emissions? Knowledge about these issues is important for governments when evaluating their own climate policies as well as climate policies of other countries. It is also important for evaluating potential future climate agreements. This report has been commissioned by the Working Group on Environment and Economics under the Nordic Council of Ministers.

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Appendices

The problem of maximizing (2.1) subject to (2.2) with a constraint S(t) ≤ S* is solved using optimal control theory. The present-value Hamiltonian is (written so all shadow prices are non-negative)

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