Optimal Control of a Global Model of Climate Change

April 7, 2022

The economy-climate interaction and an appropriate mitigation policy for climate protection have been treated in various types of scientific modeling. This paper focuses on the seminal work by Nordhaus on the economy-climate link and extends that model to include optimal policies for mitigation, adaptation, and infrastructure investment studying the dynamics of the transition to a low fossil-fuel economy.

Authors: Manoj Atolia, Prakash Loungani, Helmut Maurer, and Willi Semmler

This paper proposes a modeling strategy that attempts to answer three questions: First, what are the best strategies to keep the CO2 emission bounded by a predefined upper bound? Second, how can climate policies be scaled up and what resources should be allocated to mitigation and adaptation efforts? And third, how can mitigation and adaptation efforts be funded? Formally, the model gives rise to an optimal control problem consisting of a dynamic system with five-dimensional state vector representing stocks of private capital, green capital, public capital, stock of brown energy in the ground, and carbon emissions. The objective function captures preferences over consumption but is also impacted by atmospheric CO2 and by mitigation and adaptation policies. Given the numerous challenges to climate change policies the control vector is eight-dimensional comprising mitigation, adaptation and infrastructure investment. Our solutions are characterized by turnpike property and the optimal policies that accomplish the objective of keeping the CO2 levels within bound are characterized by a significant proportion of investment in public capital going to mitigation in the initial periods. When initial levels of CO2 are high, adaptation efforts also start immediately, but during the initial period, they account for a smaller proportion of government's public investment.


Access the paper via the Journal of the American Institute of Mathematical Sciences here