Multiple Equilibria in a Stochastic Implementation of DICE with Abrupt Climate Change
Published in: Energy Economics, v. 28, nos. 5-6, Nov. 2006, p. 677-689
Integrated assessment modeling of global climate change has focused primarily on gradually occurring changes in the climate system. However, atmospheric and earth scientists have become increasingly concerned that the climate system may be subject to abrupt, discontinuous changes on short time scales, and that anthropogenic greenhouse-gas emissions could trigger such shifts. Incorporating this type of climate dynamics into economic or integrated assessment models can result in model non-convexity and multiple equilibria, and thus complicate policy analysis relative to models with unique, globally optimal policies. Using a version of the Nordhaus DICE model amended in previous research by Keller et al. (2004) [Keller, Klaus, Benjamin M. Bolker, David F. Bradford, 2004. Uncertain climate thresholds and optimal economic growth. Journal of environmental economics and management 48 (1), 723-741], in conjunction with a stochastic global optimization algorithm, we generate "level sets" of solutions, which helps identify multiple equilibria resulting from the potential abrupt cessation of the North Atlantic Thermohaline Circulation. We discuss the implications of this model geometry for formulating greenhouse-gas abatement policy under uncertainty and suggest that this general approach may be useful for addressing a wide range of model non-convexities including those related to endogenous technological change.