Polar amplification is an established scientific fact which has been associated with the surface albedo feedback and with heat and moisture transport from the Equator to the Poles.

In a recent paper, Brock and Xepapadeas (2017)* unified a two-box climate model, which allows for heat and moisture transport from the southern region to the northern region, with a simple economic model of welfare optimization. The main contribution was to show that by ignoring spatial heat and moisture transport and the resulting polar amplification, the regulator may overestimate or underestimate the tax on greenhouse gas emissions.

The present research extends the model in two directions. First, it analyses non-cooperative solutions where each region decides unilaterally its own emissions under conditions of heat transfer and PA. Second, by allowing for capital accumulation it explores how the two-region model with PA can be unified with a Ramsey-type optimal growth model and characterizes the cooperative solution.

(*) Brock, W., and A. Xepapadeas, 2017, Climate Change Policy under Polar Amplification, European Economic Review, forthcoming.