Séminaire d’économie de Bordeaux

Ted Loch Temzelides

(Rice University)

Climate Economics Progress Report: Technology Adoption, Uncertainty, Heterogeneity, and Growth

We discuss three theoretical developments in climate economics modeling: (1) We develop an analytical Integrated Assessment Model that incorporates endogenous scrapping costs resulting from new technology adoption in renewable energy, as well as externalities associated with carbon emissions and renewable technology spillovers. We use our calibrated model to investigate the effects of the scrapping channel on renewable technology adoption and on the optimal energy transition. (2) The unprecedented nature of climate change necessitates considering model uncertainty in economic models that incorporate a feedback between the world economy and the environment. This, in turn, motivates the use of robust control optimization. This approach has several implications for optimal growth, emissions, the energy transition, and for economic policy. (3) We discuss an Integral Transformation Method for studyingsuitable optimal control and differential game models. This allows for a solution to such dynamic problems to be found through solving a family of « temporary » optimization problems parametrized by time. The method is can be used in several applications where the state equation and the objective functional are linear in a state variable. In the context of a two-country integrated assessment climate model, we characterize emissions, consumption, transfers, and welfare by computing the Nash equilibria of the associated dynamic game.

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