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Climate Economics Seminar: CRED: A New Integrated Assessment Model of Climate and Development

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Date(s): March 10, 2010, 2:00-3:30

Location: Room 4128, EPA West Building, 1301 Constitution Ave., NW, Washington, DC

Contact: Carl Pasurka, 202-566-2275

Presenter: Frank Ackerman, Global Development and Environment Institute, Tufts University

Description: This paper describes a new model, Climate and the Regional Economics of Development (CRED), which is designed to analyze the economics of climate and development choices. Like other integrated assessment models (IAMs), CRED models the interacting dynamics of the climate system and economic growth. The principal innovations in CRED are the determination of optimal capital flows between regions; the analysis of the choice between “green” and standard investment; the incorporation of the McKinsey marginal abatement cost curves; and the assumption that high-income countries may have a different carbon price from developing countries.

CRED finds that the optimal climate policy involves significant capital flows from high-income to lower-income countries. Larger inter-regional capital flows generally allow faster solutions to the climate crisis and reduce the maximum temperature increase, as well as leading to faster economic development and a more equal global distribution of income. This conclusion is based on fundamental assumptions shared by many IAMs; it is often obscured in other models by the technical procedures used to solve the model.

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