Structural and climatic change

• The paper derives a multi-sector growth model where emissions from fossil fuels give rise to a climate externality.
• Structural change is driven by heterogeneous climate impacts together with sector specific technological differences.
• A simple formula for the optimal tax rate is derived and the analysis reveals how the tax rate is influenced and influences factor reallocations decisions over time.
• Numerical examples for how optimal policies differ depending on the sectoral composition are given.

This paper studies a multi-sector growth model where emissions from fossil fuels give rise to a climate externality. Each sector is impacted heterogeneously by climate change which together with technological differences induces factor reallocation over time. By solving the social planners problem and characterizing the competitive equilibrium this paper derives a simple formula for optimal taxes and sectoral factor allocation which shows how the elasticity of substitution between sectors impact on taxes through differences in technology as well as sensitivity to climate change. I also present separate numerical simulations for how optimal policies differ depending on sectoral composition, exemplified by the U.S and Indian economy. The results show how climate change,Please check the telephone number and the email address of the corresponding author, and correct if necessary. technological development and the elasticity of substitution can impact on optimal fossil fuel consumption over time.