Designing an optimal 'tech fix' path to global climate stability: R&D in a multi-phase climate policy framework
Adriaan van Zon & Paul A. David
#2013-009
The research reported here gives priority to understanding the
inter-temporal resource allocation requirements of a program of
technological changes that could halt global warming by completing the
transition to a "green" (zero net CO2- emission) production regime
within the possibly brief finite interval that remains before Earth's
climate is driven beyond a catastrophic tipping point. This paper
formulates a multi-phase, just-in-time transition model incorporating
carbon-based and carbon-free technical options requiring physical
embodiment in durable production facilities, and having performance
attributes that are amenable to enhancement by directed R&D
expenditures. Transition paths that indicate the best ordering and
durations of the phases in which intangible and tangible capital
formation is taking place, and capital stocks of different types are
being utilized in production, or scrapped when replaced types embodying
socially more efficient technologies, are obtained from optimizing
solutions for each of a trio of related models that couple the global
macro-economy's dynamics with the dynamics of the climate system. They
describe the flows of consumption, CO2 emissions and the changing
atmospheric concentration of green-house gas (which drives global
warming), along with the investment dynamics required for the timely
transformation of the production regime. These paths are found as the
welfare-optimizing solutions of three different "stacked Hamiltonians",
each corresponding to one of our trio of integrated endogenous growth
models that have been calibrated comparably to emulate the basic global
setting for the "transition planning" framework of dynamic integrated
requirements analysis modelling (DIRAM). As the paper's introductory
section explains, this framework is proposed in preference to the (IAM)
approach that environmental and energy economists have made familiar in
integrated assessment models of climate policies that would rely on
fiscal and regulatory instruments -- but eschew any analysis of the
essential technological transformations that would be required for those
policies to have the intended effect. Simulation exercises with our
models explore the optimized transition paths' sensitivity to parameter
variations, including alternative exogenous specifications of the
location of a pair of successive climate "tipping points": the first of
these initiates higher expected rates of damage to productive capacity
by extreme weather events driven by the rising temperature of the
Earth's surface; whereas the second, far more serious "climate
catastrophe" tipping point occurs at a still higher temperature
(corresponding to a higher atmospheric concentration of CO2). In effect,
that sets the point before which the transition to a carbon-free global
production regime must have been completed in order to secure the
possibility of future sustainable development and continued global
economic growth.
JEL codes: Q540, Q550, O310, O320, O330, O410, O440
Keywords: global warming, tipping point, catastrophic climate
instability, extreme weather-related damages, R&D based technical
change, embodied technical change, optimal sequencing, multi-phase
optimal control, sustainable endogenous growth