Regional IAM: analysis of risk-adjusted costs and benefits of climate policies
AbstractAcross the full range of publications in the field of economics of climate change there is perhaps only one firm agreement: both costs and benefits of climate policy are highly uncertain. In an ideal world one would wait until a good deal of uncertainty is resolved and then make a final decision. Usually in the economic literature it would be interpreted as adopting a relatively weak policy now and adjusting it later. Unfortunately, in the context of path-dependency and irreversibility of climatic events there is no way to preserve a full flexibility for the future: near-term selection of an interim climate policy implies some irreversible consequences. Continued accumulation of GHG in the atmosphere makes some policy targets (expressed in temperature level or GHG ppm concentration) infeasible. The paper examines the application of real option analysis to calculate costs and benefits of an interim climate policy. In contrast to conventional CBA, the proposed methodology also accounts for lost and gained flexibility attributed to the adoption of an interim target.
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Bibliographic InfoPaper provided by BC3 in its series Working Papers with number 2013-06.
Date of creation: Feb 2013
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Publication status: Published
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Web page: http://www.bc3research.org/
Climate policy; integrated impact assessment model; uncertainty; real option analysis;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-03-02 (All new papers)
- NEP-ENE-2013-03-02 (Energy Economics)
- NEP-ENV-2013-03-02 (Environmental Economics)
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