A Global-Economy Climate Model with High Regional Resolution

Abstract:

This paper develops a dynamic, global, economy-climate (or integrated-assessment) model with high regional resolution. The model features a very large number of regions and substantial region-specific detail; rich economic interactions between regions (such as capital flows); and uncertainty about weather and climate. The model is used, one, to measure the heterogeneous effects across different regions of climate change and climate policy and, two, to study the global effects of heterogeneous policy (such as carbon taxes that vary by region). The model thus expands substantially on the canonical DICE and RICE models, pushing out the research frontier to allow the quantitative evaluation of climate change and climate policy at a level of geographic resolution that those models do not permit. It also introduces economic mechanisms—such as spatial adaptation, leakage in response to differential climate policy across regions, and (partial) insurance against shocks to weather and climate—upon which these models are silent. The model delivers quantitative evaluations of welfare for each of its 19,000 regions. Welfare differs by region both because climate change affects regions differently and because climate policy differs across regions. The model can therefore assess quantitatively the distributional effects of climate change and climate policy.