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Energy and the environment are closely interconnected. In particular, energy-related carbon dioxide emissions are major contributors to climate change. To analyze options within the energy sector to curb greenhouse gas emissions, or to study alternative climate strategies such as adaptation and geoengineering measures, policy-makers can rely on mathematical decision support models, in particular E3 (economy/energy/environment) models and integrated assessment models (IAMs). This paper reviews some of my recent contributions to climate policy design using different types of E3 models and IAMs. [ABSTRACT FROM AUTHOR]

In the meta-modeling approach, one builds a numerically tractable dynamic optimization or game model in which the parameters are identified through statistical emulation of a detailed large scale numerical simulation model. In this paper, we show how this approach can be used to assess the economic impacts of possible climate policies compatible with the Paris Agreement. One indicates why it is appropriate to assume that an international carbon market, with emission rights given to different groups of countries will exist. One discusses the approach to evaluate correctly abatement costs and welfare losses incurred by different groups of countries when implementing climate policies. Finally, using a recently proposed meta-model of game with a coupled constraint on a cumulative CO2 emissions budget, we assess several new scenarios for possible fair burden sharing in climate policies compatible with the Paris Agreement. [ABSTRACT FROM AUTHOR]

The idea of Border Carbon Adjustment (BCA), which makes it possible to transform the standard tax on carbon emissions from production (origin principle) to a tax system imposed at the point of consumption (destination principle), has received a considerable amount of attention from academia and policymakers. In this paper, we go back to the source of environmental destination-based taxation and generalize the results of Markusen ( Journal of International Economics, 5, 15-29, ) for optimal tax and tariff by extending domestic environmental policy on both goods featuring positive carbon intensities. Following Jakob et al. ( Environmental and Resource Economics, 56(1), 47-72, ) we remove the strategic term from the optimal tariff and deal with the so-called optimal carbon tariff, targeting primarily environmental externality. Further, we develop a handy approximation for optimal tax and optimal carbon tariff structure in a multiple good setting. Such trade taxation is, however, likely to face further legal obstacles, which may hinder its implementation. This motivates us to adjust the results accordingly and to include refunds for low-carbon investments in a 'dirty' country granted proportionally to the difference in carbon intensities between trade partners. This new scheme, known as Progressive Optimal Technology-based Border Carbon Adjustment (POT BCA), mitigates several legal problems and increases political acceptance compared to the 'standard' BCA. It can also be seen as advantageous from the economic point of view: it mimics the performance of the optimal carbon tariff while aiming to decrease foreign carbon intensity over the long term. [ABSTRACT FROM AUTHOR]

We set up a model with intergenerational bequest transfers and climate damage on the wealth of heterogeneous households. We show that, under credit market imperfections and depending on wealth distribution across households, a balanced budget climate policy may widen the wealth inequality gap between the rich and poor. Climate policy may create positive effects on the wealth of households, but these effects are asymmetric across households in terms of both magnitude and the transmission of gains from a climate policy within households. The gains of the poor from a climate policy are mainly transmitted into improving living standards and the investment in human capital due to the higher marginal return to education investment. By contrast, the gains of the rich from a climate policy are transmitted biasedly into physical capital accumulation and thereby enhance their monopolistic position in the production of intermediate inputs. We show that, for any climate policy, there exists a corresponding threshold of aggregate physical capital. When the aggregate physical capital of the economy exceeds this threshold, the corresponding climate policy may widen the intergenerational bequest transfers among heterogeneous households, thereby contributing to widening the wealth inequality gap between the rich and poor. [ABSTRACT FROM AUTHOR]

Many authors who have analyzed key energy prices, such as crude oil and natural gas, have found that these prices exhibit "fat tails"—the feature that large percentage changes occur far more often than would be predicted by a conventional model. These fat tails can arise either because of time-varying volatility or because of rapid, unexpected changes—also known as jumps. Addressing global climate change is likely to require broad-based deployment of new infrastructure. This new infrastructure is likely to be both costly to build and difficult to reverse—suggesting the deployment of new infrastructure is an example of "investment under uncertainty" [1]. In this context, a key concept is the "option value of waiting," i.e., the potential gain in value that arises from waiting to learn more about the evolution of some key underlying stochastic ingredient, such as a commodity price or the cost of a carbon permit. We argue that this option value of waiting is likely to be increased by the presence of jumps. Assuming there is some urgency in undertaking these investments, the increase in option value of waiting is worrisome and motivates the deployment of a policy intervention that reduces this option value. [ABSTRACT FROM AUTHOR]