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Policy Responses to Climate Change in a Dynamic Stochastic Economy

Yongyang Cai, Ohio State University

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T. J. Canann, University of Minnesota; Carlos Rangel, Hoover Institution; Gregor Reich, University of Zurich; Philipp Renner, Lancaster University; Simon Scheidegger, University of Zurich and Hoover Institution

We have developed a framework, called DSICE, for evaluating alternative policy responses to potential future climate change in models that merge uncertainties related to both economic and climate factors and their interaction. More precisely, DSICE combines numerical methods for quadrature, approximation, and optimization to develop efficient parallel methods for solving 6-20 dimensional discrete-time dynamic programming problems. Our code scales linearly between 30 and 5,000 nodes.

We have been extending DSICE to incorporate spatial disaggregation in both climate and economic systems. We will extend DSICE to solve for climate change policies when there are multiple competing actors making decisions, such as different firms, sectors, and countries. For example, we will include multiple sectors, such as food, energy and manufacturing, along with an energy balance climate model. Climate change policies involve the current generation making investments today in policies that primarily benefit future generations. We will study intergenerational impacts of alternative policies.