Abstract

In order to design an efficient and sustainable climate policy, a crucial decision issue is to find the rational policy mix between environmental abatement and adaptation. An aggregated economic-environmental model is constructed that allows us to explore this topic analytically. The model is formulated in the classic Solow-Swan macroeconomic framework as an infinite-horizon social planner problem with the adaptation and abatement investments as separate decision variables. The utility function depends on the environmental quality and adaptation efforts. A qualitative analysis of the model demonstrates the existence of a unique steady state and leads to determining the optimal balance between investing into adaptation measures and emission abatement. The outcomes of the model investigation can be implemented in associated long-term environmental policies and regulations. The model is calibrated on available economic and climate data and predictions. Some other economic-environmental models with endogenous technological change, energy restrictions, and environmental CO2 quotas will be also briefly discussed.