Title: A three-phase model of climate change mitigation
Authors: Sergey Orlov - International Institute for Applied Systems Analysis, Austria and Lomonosov Moscow State University (Russia) [presenting]
Elena Rovenskaya - International Institute for Applied Systems Analysis (Austria)
Julia Puaschunder - New School for Social Research (United States)
Willi Semmler - New School for Social Research (United States)
Abstract: A three-phase optimal control model is considered for economic growth and climate change mitigation through transiting to low-carbon technologies. In the first phase, companies invest in adopting low-carbon technologies and a part of the required investment is reimbursed through 'climate' bonds issued by the government. The second phase starts when the greenhouse gases' concentration is reduced to a pre-industrial level and firms have fully adopted low-carbon technologies. In this phase, bonds are being repaid through taxation. In the last phase, the economy is accumulating capital and consume enjoying the stabilized climate. The standard consumption based utility function in the logarithmic form is applied over all three phases. We use GPOPS-II software to find a locally optimal solution in the model, including the optimal switching times between phases. We compare the obtained optimal solution with a business-as-usual version of this model, in which no mitigation action is undertaken. The social welfare function in the mitigation policy model turns out to be greater than the one in the business-as-usual model over almost the entire time horizon of consideration with the exception of a short period in the beginning of the first phase.