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date: 22 September 2020

Abstract and Keywords

This chapter explores optimal mitigation policies through the lens of a latitude-dependent energy balance climate model, featuring an endoge-nously driven polar ice cap. We associate the movement of the polar ice cap with the idea of a damage reservoir being a finite source of climate related damage affecting the economy only to the extent that there still exists some ice left to melt. We capture this idea by coupling the climate model with an economic growth model. When combined with two sources of damages, conventional and reservoir type damages, this generates mul-tiple steady states and Skiba points, which induce U-shaped mitigation policies. This is also shown in a modified version of the well known DICE model by William Nordhaus.

Keywords: energy balance climate models, economic growth, damage reservoirs, multiple equilibria, Skiba points

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