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arXiv · 2310.13200

A Deep Learning Analysis of Climate Change, Innovation, and Uncertainty

Michael Barnett·William Brock·Lars Peter Hansen·Ruimeng Hu·Joseph Huang
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Abstract

We study the implications of model uncertainty in a climate-economics framework with three types of capital: "dirty" capital that produces carbon emissions when used for production, "clean" capital that generates no emissions but is initially less productive than dirty capital, and knowledge capital that increases with R\&D investment and leads to technological innovation in green sector productivity. To solve our high-dimensional, non-linear model framework we implement a neural-network-based global solution method. We show there are first-order impacts of model uncertainty on optimal decisions and social valuations in our integrated climate-economic-innovation framework. Accounting for interconnected uncertainty over climate dynamics, economic damages from climate change, and the arrival of a green technological change leads to substantial adjustments to investment in the different capital types in anticipation of technological change and the revelation of climate damage severity.

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Michael Barnett, William Brock, Lars Peter Hansen, Ruimeng Hu, Joseph Huang. 2023-10-19. A Deep Learning Analysis of Climate Change, Innovation, and Uncertainty. https://arxiv.org/abs/2310.13200

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