Rick Van der Ploeg, University of Oxford Climate Policy and Asset Diversification

Date

Thursday, September 17, 2020

Time

SF 8:00am, NYC 11:00am, BERLIN 5:00pm

Location

Virtual

Rick van der Ploeg is Professor of Economics at the University of Oxford. He is Research Director of the Oxford Centre for the Analysis of Resource Rich Economies (OxCarre). He is also Research Fellow in International Macroeconomics at the CEPR, London, and Director of the Public Sector Economics programme at CESifo, Munich. His research interests are (international) macroeconomics and public finance with special focus on the economics of natural resources and climate change, political economy and development economics. He also has an interest in the economics of culture and higher education reform.

Seminar and Q&A recording (video, 55:48 minutes)

Transcript

Rick Van der Ploeg:

s. The investment ratio is I over K respond to the Tobin’s Qs positively. So higher Tobin Q means higher investment rates. The Tobin’s Qs are related to the marginal value of capital divided by the marginal value of consumption. The optimal reallocation of capital if the Tobin Q the clean sector is higher that the Tobin’s Q in the dirty sector, then you relocate capital from the dirty sector to the green sector, then our R is positive. And then these two equations there are just a mass of productivity conditions for fossil fuel and for green energy. So the left hand one is for green energy, it’s just a cost of green energy what we want and the mass of product fossil fuel is equal to the cost of fossil fuel, B2, plus something related to the Pigouvian tax from using one unit of fossil fuel, which has given on that bottom expression there. So this is the theorem we use to make the model easier to solve. So we define a share of dirty capital. This is a share of the capital in the Brown sector divided by the total capital stock. Then you can just basically this fair insurance that you can just solve the reduced-form Hamilton-Jacobi-Bellman equation in terms of S and T, just intentional share of dirty capital on temperature, rather than terms of those three variables. And we can actually write down the value function exactly as it’s given there in expression 3.9 is proportional to K to the one minus gamma and a reduced-form value function just depends on T and S. This makes it computationally so, so much easier to solve, and otherwise, it would have been a actually numerically, a bit of a nightmare.

Glenn Rudebusch:

Rick, we have about 20 minutes left in the presentation.

Rick:

Okay, I’m fine

Glenn:

Great.

Rick: