Course 609: Climate Change Economics

2022

Questions have to be answered in an Excel spreadsheet and written out (where required). Submit your
speadsheet after naming it <firstname_lastname.xls>.

Open RICE 2010 model spreadsheet: RICE_2010_opt_000.xls

Q1. Open the US sheet.

(i) Compare utility levels reported in cells B92 and B95 respectively.

(ii) Why and how do these differ?

(iii) Which of these is used in global welfare maximization?

Q2. Open the Global sheet.

(i) What is value of FCO22x? What does it mean?

(ii) Increase it to 10. How does this affect increase in atmospheric temperature? Does it exceed the 2°C
target? Illustrate graphically.

Q3. Open the EU sheet.

If taxes are control variables, how and why does the carbon tax reported in cell B106 differ from carbon
tax from global warming (cell B108)?

Q4. Open the India sheet.

(i) How is sigma calculated?

(ii) How does it vary over time? Explain why.

(iii) How are the “carbon tax”and the “carbon tax for global warming” calculated? [Explain the formulae
in the respective cells.] Explain why the two differ after the year 2135.

Q5. Open the US sheet. Explain how the emission control rate is calculated when taxes are control
variables. How does this compare with the emission control rate when emissions are capped and traded?
What can one conclude about the efficiency of permits versus taxes?

Q6. (i) How are total carbon emissions determined?

(ii) How do emissions vary for EU and Africa? Illustrate graphically.

Q7. (i) How does the marginal damage from a given temperature increase vary across countries?

(ii) Which countries are worst / least affected from increases in temperature? Answer using empirical
estimates of coefficient of the damage function.
Open DICE 2013R model excel spreadsheet: DICE_2013R_112513s.xlsx

Note: In the questions below the period for optimization is 2015-2150

Q1. Open the parameters sheet.

(i) What are the values of pure rate of time preference and elasticity of marginal utility of consumption?

(ii) Ceterus paribus, change the pure rate of time preference to 1.3 percent. Graph optimal paths of carbon
price and atmospheric temperature. Compare these with those for original values of the pure rate of time
preference. Interpret your results.

Q2. Open the opttax sheet.

(i) What is the value of sigma in the first period?

(ii) Ceterus paribus, change the initial value of sigma to 0.75 (MtCO2 / 1000 US$). Graph optimal paths
of carbon price and carbon emissions. Compare these with those for original values of the pure rate of
time preference. Interpret your results.

Q3. Open the limt2 sheet.

(i) Write the damage function (in terms of temperature increase).

(ii) Increase exponent of the damage function to 3. Compute marginal damage from temperature increase
for t = 2. Graph optimal paths of carbon price and increase in atmospheric temperature. Compare these
with those for original values of the pure rate of time preference. Interpret your results.

(Note: Time period to be considered for optimization: 2015-2105)

 General Questions

DICE 2013R

1. Examine the implications of Harrod neutral technological change for optimal carbon policy.

2. If the production function includes carbon emissions (E) such that

𝑌 = 𝐴 𝐾 𝛾 𝐿1−𝛼−𝛾 𝐸 𝛼

3. How does this affect the optimal path of carbon emissions?

4. What are Hotelling rents? How do their value differ across the scenarios considered?

5. Suppose the damage function is

6. Ω = 𝑎1 𝑇 + 𝑎2 𝑇 2 + 𝑎3 𝑇 3

7. How is the coefficient of the abatement cost function calculated?

8. Elaborate the implications of partial participation of countries for optimal carbon taxes.

9. What determines the upper limit of the carbon price? How does it vary over time?

10. Interpret coefficients of the carbon cycle transition matrix. What do the extreme values denote?

11. Examine the impacts of an increase in the temperature sensitivity coefficient for emissions, carbon
price and emissions control rate.

RICE 2010

1. What is the participation decision being considered in the study? Do all countries participate from
2005 onwards?

2. Do all countries experience similar damages from climate change? Which countries are the worst and
least affected?

3. Do lower income countries have higher emissions per unit output?

4. Do abatement costs vary across countries? If yes, how and why?

5. Do the cooperative and non-cooperative carbon taxes differ for European Union and India? If yes,
elaborate possible reasons for the same.

6. Which regions have the highest and lowest carbon emissions under optimal policy? Elaborate reasons
for this.