3 - max abatement – actual abatement – decay ← ←...

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26/01/2010 20:14:00 Flow pollutants     : environment can break down minimize the sum of abatement costs and damages in one period damage depend directly on emissions:  solutions are stationary policies unless conditions change over time Max {B(A) – C(A)}   0 = B’(A) – C’(A) Stock pollutants     : accumulates, costs > flow, assumes infinite timeline minimize the PV of the sum of abatement costs and damages over all time damages depend upon the stock solution is dynamic and should change over time (become more strict) as the  stock increases because stock pollutants remain in the environment, they cause a stream of  damages which are more harmful than simply one period’s damage B(S)e -rt  – C(A) e -rt  +  λ (A’-A-gs)=H (Hamiltonian) =  MC(A) MB(A) S’=∂S/∂t (how stock changes over time) = A’ - A l  -  λ
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Unformatted text preview: max abatement – actual abatement – decay ← ← Emerging countries : focus on economy before environment, which is a mistake - stock pollutants build up. But investing now leads to r ↑ , higher discount for pollutants later (cheaper)! Ideally, invest in a environment fund. ← ← Stock will increase until S’=(A’-A)-gS=0 (ie. reach steady state) ← Marginal units of abatement gets more expensive @ increasing rate ← ← MC of fossil fuels (CO 2 emission) is extremely steep because we don’t know how to reduce it ← Renewable energy must be on large scale ← MC ( S t ) = MD ( S t ) + MC '( S t ) r + l where MC’(S t ) is negligibly small ← Better to abate later: ← Cheaper technology ← Discount rate: value of $ ↑ , cheaper costs ← ← ← 26/01/2010 20:14:00 ← 26/01/2010 20:14:00 ←...
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This note was uploaded on 01/26/2010 for the course ECON 330 taught by Professor Robertmendelsohn during the Fall '08 term at Yale.

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3 - max abatement – actual abatement – decay ← ←...

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