In an open economy, can unilateral environmental policies undertaken by a group of committed countries ensure sustainable growth? This paper addresses this question in a dynamic model with directed technical change. There are two countries and two tradeable goods. One of the two goods (the polluting good) is produced with a clean input and a dirty input, which causes a global externality. Innov...

This paper formulates a dynamic model of global carbon consumption in the absence of an effective international agreement. Each period, countries extract carbon from the global ecosystem. A country’s output depends both on its carbon usage and on“stored carbon” in the ecosystem. We characterize Business-as-usual (BAU) equilibria as smooth, Markov Perfect equilibrium profiles of carbon usage acr...

Drawing upon climate change damage functions previously proposed in the literature that we have calibrated to a common level of damages at 2.5 C, we examine the effect upon the social cost of carbon (SCC) of varying the specification of damages in a DICE-like integrated assessment model. In the absence of risk aversion, all of the SCC estimates but one agree within a factor of two. The effect o...

The existence of some 2 billion unused EU Allowances (EUAs) at the end of Phase II of the EU’s Emissions Trading System (EU ETS) has sparked considerable debate about structural shortcomings of the EU ETS. However, there has been a surprising lack of interest in considering the accumulation of EUAs in light of the theory of intertemporal permit trading, i.e. allowance banking. In this paper we ...

Economists are increasingly using weather data and climate model output in analyses of the economic impacts of climate change. This article introduces a set of weather data sets and climate models that are frequently used, discusses the most common mistakes economists make in using these products, and identifies ways to avoid these pitfalls. We first provide an introduction to weather data, inc...

In most countries, environmental regulation focuses on local pollution, which causes damages near the emission source, while regulation on global pollutants such as greenhouse gases (GHG) has been slow. Theoretically, local and global pollutants can either be substitutes or complements in production, implying that local pollution regulation may either intensify or reduce global warming concerns...

Estimates of both the human impact on climate as well as the economic impacts of climate change are crucial to inform policy decisions. Econometric modelling allows us to quantify these impacts and their uncertainties, but models have to be consistent with the underlying physics and the time series properties of the data. Here, I show that energy-balance models of climate are equivalent to an e...

A key challenge for a future climate change agreement is allocating emissions targets for individual developed countries that are perceived as equitable given differing national circumstances. Many economics-based frameworks for evaluating future targets use as a key criterion for individual country targets the notion that mitigation measures should result in similar costs (specifically, that t...