Optimal climate policy in three dimensions.

Abstract:

Integrated Assessment Models (IAMs) of climate change are used to compute an optimal global climate strategy from the perspective of a benevolent unitary decision-maker. DICE (Dynamic Integrated model of Climate and Economy) and similar IAMs compute an optimal schedule for emissions reductions over time by balancing the cost of emissions controls against climate damages. Beyond mitigation, possible responses to climate change include solar geoengineering (SG) and carbon dioxide removal (CDR). We modify DICE to include a novel parameterization of SG’s efficacy and impacts, where the treatment of efficacy accounts for disparities in the climate response to SG calibrated using climate models. We include a simple parameterization for CDR that decouples it from the scale of baseline emissions. We reproduce the “napkin diagram” using an economic optimization model. We find that (a) SG delays use of mitigation and CDR—related to but distinct from SG’s moral hazard—but that substitution between SG and control of net emissions is weak so that allowing SG causes little delay in optimal reduction of net emissions; (b) that use of SG is driven by short-term trade-offs between its impacts and benefits while being relatively independent of discounting and of the long-term trade-off between SG and carbon management over time; (c) that allowing small amounts of SG sharply reduces the cost of meeting a 2⁰C target; and finally, (d) that even with a conservative calibration for the efficacy of SG, its use nevertheless allows a large reduction of the overall cost of managing climate change.