Optimal multi-phase transition paths toward a stabilized global climate: Integrated dynamic requirements analysis for the 'tech fix'
Paul A. David & Adriaan van Zon
#2012-075
This paper analyses the requirements for a social welfare-optimized
transition path toward a carbon-free economy, focusing particularly on
the role of R&D and other technological measures to achieve timely
supply-side transformations in the global production regime that will
avert catastrophic climate instability. We construct a heuristic
integrated model of macroeconomic growth constrained by a geophysical
system with climate feedbacks, including extreme weather damages from
global warming driven by greenhouse gas emissions, and 'tipping point'
for catastrophic runaway warming. A variety of options for technology
development and implementation, and the dynamic relationships among them
will be examined. Technology options differ in terms of their primary
functionality and in emission characteristics. The specifications
recognize (i) the endogeneity and embodiment of technical innovations,
and (ii) the irreversibility and long gestation periods of required
intangible (R&D) and tangible capital formation. Efficient exercise of
these options is shown to involve sequencing different investment and
production activities in separate temporal "phases" that together form a
transition path to a carbon free economy. To study the requirements of a
timely (catastrophe-averting) transition, we formulate a sequence of
optimal control sub-problems linked together by transversality
conditions, the solution of which determines the optimum allocation of
resources and sequencing of the several phases implied by the options
under consideration. Ours is a "planning-model" approach, which departs
from conventional IAM exercises by eschewing assumptions about the
behaviours of economic and political actors in response to market
incentives and specific public policy measures. Solutions for each of
several multi-phase models yields the optimal phase durations and rates
of investment and production that characterize the transition path.
Sensitivity experiments with parameters of economic and geophysical
sub-systems provide insights into the robustness of the requirements
analysis under variations in the technical and geophysical system
parameters.
JEL codes: Q540, Q550, O310, O320, O330
Keywords: global warming, tipping points, catastrophic climate
instability, technology fix options, R&D investments, capital-embodied
innovations, optimal sequencing, multi-phase optimal control,
sustainable endogenous growth