Robust Analytical and Computational Explorations of Coupled Economic-Climate Models with Carbon-Climate Response

The economics of global climate change is characterized by fundamental uncertainties, including the appropriate reduced forms for climate dynamics, the specification of economic damages resulting from climate change, and mechanisms by which these damages will affect long-run economic growth. Using a dynamic integrated assessment framework, this paper makes several contributions to improving the analysis of these uncertainties. First, we incorporate the cumulative climate response (CCR) function developed by Matthews et al. for representing the basic relationship between anthropogenic carbon emissions and increases in global mean temperature in a manner that is more directly policy relevant than the usual approach based on the equilibrium climate sensitivity. Second, we adapt the tools developed by Hansen, Sargent and others for robustness analysis to address underlying model uncertainty in both economic and climate dynamics. Third, we allow climate change to affect economic growth directly, in addition to its effect on output. We develop and study a simple analytical model that yields insights and results on the key implications of these assumptions, as well as facilitating the interpretation of numerical results from a more general model. Among our findings is that the presence of robustness may result in either a decrease or increase in the optimal carbon tax and energy usage, depending among other factors on societal preferences