A quantitative minimax regret approach to climate change: Does discounting still matter?
AbstractUsing cost-benefit analysis to determine an optimal climate mitigation target is criticised, especially because i) it fails to sufficiently take into account low-probability, high-impact events, and ii) results strongly depend on the discount rate used. One of the alternative suggestions to inform policymakers about the right mitigation target that does take the risks associated with low-probability, high-impact events explicitly into account is the minimax regret criterion. We apply the minimax regret criterion quantitatively using an integrated assessment model with extreme values for climate sensitivity, damage estimates and mitigation costs. The goal is to analyse whether such a method leads to different results compared to standard cost-benefit analysis and whether the results are still sensitive to the discount rate used. We find that the minimax regret approach leads to more stringent and robust climate targets for relatively low discount rates and if both a high climate sensitivity and high damage estimates are assumed. If one of these assumptions does not hold, the difference between the minimax regret approach and standard cost-benefit analysis is much smaller. Therefore, we conclude that the discount rate used can still be of vital importance even when applying a minimax regret approach.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Ecological Economics.
Volume (Year): 70 (2010)
Issue (Month): 1 (November)
Contact details of provider:
Web page: http://www.elsevier.com/locate/ecolecon
Climate change Cost-benefit analysis Risk approach Minimax regret Precautionary principle;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Martin L. Weitzman, 2007. "A Review of the Stern Review on the Economics of Climate Change," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 703-724, September.
- Thomas Sterner & U. Martin Persson, 2008.
"An Even Sterner Review: Introducing Relative Prices into the Discounting Debate,"
Review of Environmental Economics and Policy,
Association of Environmental and Resource Economists, vol. 2(1), pages 61-76, Winter.
- Sterner, Thomas & Persson, U. Martin, 2007. "An Even Sterner Review: Introducing Relative Prices into the Discounting Debate," Discussion Papers dp-07-37, Resources For the Future.
- Nordhaus, William D., 1993.
"Rolling the 'DICE': an optimal transition path for controlling greenhouse gases,"
Resource and Energy Economics,
Elsevier, vol. 15(1), pages 27-50, March.
- William D. Nordhaus, 1992. "Rolling the 'Dice': An Optimal Transition Path for Controlling Greenhouse Gases," Cowles Foundation Discussion Papers 1019, Cowles Foundation for Research in Economics, Yale University.
- Keller, Klaus & Bolker, Benjamin M. & Bradford, D.F.David F., 2004. "Uncertain climate thresholds and optimal economic growth," Journal of Environmental Economics and Management, Elsevier, vol. 48(1), pages 723-741, July.
- William D. Nordhaus, 2007. "A Review of the Stern Review on the Economics of Climate Change," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 686-702, September.
- Richard T. Woodward & Richard C. Bishop, 1997. "How to Decide When Experts Disagree: Uncertainty-Based Choice Rules in Environmental Policy," Land Economics, University of Wisconsin Press, vol. 73(4), pages 492-507.
- Weitzman, Martin L., 2009.
"On Modeling and Interpreting the Economics of Catastrophic Climate Change,"
3693423, Harvard University Department of Economics.
- Martin L. Weitzman, 2009. "On Modeling and Interpreting the Economics of Catastrophic Climate Change," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 1-19, February.
- Tony Prato, 2008. "Accounting for risk and uncertainty in determining preferred strategies for adapting to future climate change," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 13(1), pages 47-60, January.
- Martin L. Weitzman, 1998.
Harvard Institute of Economic Research Working Papers
1843, Harvard - Institute of Economic Research.
- van Vuuren, Detlef P. & de Vries, Bert & Eickhout, Bas & Kram, Tom, 2004. "Responses to technology and taxes in a simulated world," Energy Economics, Elsevier, vol. 26(4), pages 579-601, July.
- den Elzen, Michel G. J. & de Moor, Andre P. G., 2002. "Analyzing the Kyoto Protocol under the Marrakesh Accords: economic efficiency and environmental effectiveness," Ecological Economics, Elsevier, vol. 43(2-3), pages 141-158, December.
- Richard Tol, 2002. "Estimates of the Damage Costs of Climate Change, Part II. Dynamic Estimates," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 21(2), pages 135-160, February.
- Manne, Alan & Mendelsohn, Robert & Richels, Richard, 1995. "MERGE : A model for evaluating regional and global effects of GHG reduction policies," Energy Policy, Elsevier, vol. 23(1), pages 17-34, January.
- Tol, Richard S. J., 2009. "The Feasibility of Low Concentration Targets: An Application of FUND," Papers WP285, Economic and Social Research Institute (ESRI).
- Richard B. Howarth, 2003. "Discounting and Uncertainty in Climate Change Policy Analysis," Land Economics, University of Wisconsin Press, vol. 79(3), pages 369-381.
- Solow, Robert M, 1974. "The Economics of Resources or the Resources of Economics," American Economic Review, American Economic Association, vol. 64(2), pages 1-14, May.
- Tol, Richard S. J., 2002. "Welfare specifications and optimal control of climate change: an application of fund," Energy Economics, Elsevier, vol. 24(4), pages 367-376, July.
- Camilla Froyn, 2005. "Decision Criteria, Scientific Uncertainty, and the Globalwarming Controversy," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 10(2), pages 183-211, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wendy Shamier).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.