Designing an optimal 'tech fix' path to global climate stability: Directed R&D and embodied technical change in a multi-phase framework
Adriaan van Zon & Paul A. David
#2013-041
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 modeling
(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 classification: Q540, Q550, O310, O320, O330, O410, O440.
Keywords: global warming, tipping point, catastrophic climate
instability, extreme weatherrelated damages, R&D, directed technical
change, capital-embodied technologies, optimal sequencing, multi-phase
optimal control, sustainable endogenous growth.