Abstract: In economics literature, the climate system is often modeled by a linear system, mostly because of its simplicity. In reality, however, the climate system responds to anthropogenic carbon emission in a much more complex manner, especially when it is stretched beyond capacity. In this paper, I develop an analytic integrated assessment model which allows for a non-linear response of climate system to carbon emission. The model is highly tractable and both the optimal solution and the non-cooperative equilibrium can be characterized in a transparent way. Differences between linear and non-linear climate systems are highlighted. I use the model of non-linear climate system to investigate a number of important climate policy issues, including the optimal carbon price and the consequences of unsuccessful international climate cooperation.
Hiroaki Sakamoto is currently visiting University of Oslo until the end of October. He’s a junior environmental and resource economist co-authoring among others with Larry Karp and Christian Traeger.