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Abstract

A highly simplified time-dependent low-dimensional system has been designed to
describe conceptually the interaction of climate and economy. Enhanced
emission of carbon dioxide (C02) is understood as the agent that not only
favors instantaneous consumption but also causes unfavorable climate changes
at a later time. We consider the problem of balancing these two
counterproductive effects of C02 emissions on a finite time horizon.

The climate system is represented by just two parameters, namely a globally
averaged near-surface air-temperature and a globally averaged tropospheric CO2
concentration. The costs of abating C02 emissions are monitored by a function
which depends quadratically on the percentage reduction of emission compared
to an "uncontrolled emission" scenario. Parameters are fitted to historical
climate data and to estimates from studies of C02 abatement costs.

Two optimization approaches, which differ from earlier attempts to describe
the interaction of economy and climate, are discussed. In the "cost oriented"
strategy an optimal emission path is identified which balances the abatement
costs and explicitly formulated damage costs. These damage costs, whose
estimates are very uncertain, are hypothesized to be a linear function of the
time-derivative of temperature. In the "target oriented" strategy an emission
path is chosen so that the abatement costs are minimal while certain
restrictions on the terminal temperature and concentration change are met.