NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

The Carbon Abatement Game

Christoph Hambel, Holger Kraft, Eduardo S. Schwartz

NBER Working Paper No. 24604
Issued in May 2018, Revised in September 2018
NBER Program(s):Asset Pricing Program, Environment and Energy Program

Climate change is one of the major global challenges. Mitigating its impact is however bedeviled by free-rider problems and external effects. We thus study the problem of optimal carbon abatement in a dynamic non-cooperative game-theoretical setting involving multiple countries that are open economies. Our framework involves stochastic dynamics for CO2 emissions and economic output of the countries. Each country is represented by a recursive-preference functional. Despite its complexity, the model is analytically tractable. We can explicitly quantify each country's decision on consumption, investment, and abatement expenditures. We also derive closed-form solutions for the country-specific and global social cost of carbon (SCC). One key finding is that both versions of the SCC are increasing in trade volume. This result is robust to adding capital transfers between countries. Our numerical examples suggest that disregarding trade might lead to a significant underestimation of the SCC.

download in pdf format
   (749 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w24604

 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us