Mitigation, Adaption and Growth with a Climate Target

Using an growth model with climate damages and a tipping point, this paper determines the optimal climate policy and the optimal economic development. Climate policy internalizes climate damages and technology spillovers by a carbon tax and a research subsidy. The investment regime is determined by the capital endowment and the characteristics of the climate damage function. Adaption investments precede the accumulation of a green energy generation capacity only if climate damages are sensitive with respect to better adaption technologies and the capital endowment is not too high. Otherwise, early investments focus on the accumulation of capital [capacity] if the capital endowment is low [high]. Mitigating carbon emissions via an increasing carbon tax effect is only an option if marginal climate damages are low. If they are high and the capital endowment low [high] emissions are mitigated by capacity investments [and a reduction of the capital stock]