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Delayed Action and Uncertain Targets. How Much Will Climate Policy Cost?

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Author Info

  • Valentina Bosetti
  • Carlo Carraro
  • Alessandra Sgobbi
  • Massimo Tavoni

Abstract

Despite the growing concern about actual on-going climate change, there is little consensus about the scale and timing of actions needed to stabilise the concentrations of greenhouse gases. Many countries are unwilling to implement effective mitigation strategies, at least in the short-term, and no agreement on an ambitious global stabilisation target has yet been reached. It is thus likely that some, if not all countries, will delay the adoption of effective climate policies. This delay will affect the cost of future policy measures that will be required to abate an even larger amount of emissions. What additional economic cost of mitigation measures will this delay imply? At the same time, the uncertainty surrounding the global stabilisation target to be achieved crucially affects short-term investment and policy decisions. What will this uncertainty cost? Is there a hedging strategy that decision makers can adopt to cope with delayed action and uncertain targets? This paper addresses these questions by quantifying the economic implications of delayed mitigation action, and by computing the optimal abatement strategy in the presence of uncertainty about a global stabilisation target (which will be agreed upon in future climate negotiations). Results point to short-term inaction as the key determinant for the economic costs of ambitious climate policies. They also indicate that there is an effective hedging strategy that could minimise the cost of climate policy under uncertainty, and that a short-term moderate climate policy would be a good strategy to reduce the costs of delayed action and to cope with uncertainty about the outcome of future climate negotiations. By contrast, an insufficient short-term effort significantly increases the costs of compliance in the long-term.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2008/wp-cesifo-2008-09/cesifo1_wp2403.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2403.

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Date of creation: 2008
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Handle: RePEc:ces:ceswps:_2403

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Related research

Keywords: uncertainty; climate policy; stabilisation costs; delayed action;

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References

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  1. Kolstad, Charles D., 1996. "Learning and Stock Effects in Environmental Regulation: The Case of Greenhouse Gas Emissions," Journal of Environmental Economics and Management, Elsevier, vol. 31(1), pages 1-18, July.
  2. Karp, Larry & Zhang, Jiangfeng, 2006. "Regulation with anticipated learning about environmental damages," Journal of Environmental Economics and Management, Elsevier, vol. 51(3), pages 259-279, May.
  3. Bosetti, Valentina & Tavoni, Massimo, 2009. "Uncertain R&D, backstop technology and GHGs stabilization," Energy Economics, Elsevier, vol. 31(Supplemen), pages S18-S26.
  4. Valentina Bosetti & Carlo Carraro & Massimo Tavoni, 2008. "Delayed Participation of Developing Countries to Climate Agreements: Should Action in the EU and US be Postponed?," Working Papers 2008.70, Fondazione Eni Enrico Mattei.
  5. Minh Ha-Duong & Michael Grubb & Jean-Charles Hourcade, 1997. "Influence of socioeconomic inertia and uncertainty on optimal CO2-emission abatement," Post-Print halshs-00002452, HAL.
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Cited by:
  1. Barbier, Edward B., 2010. "Global governance: the G20 and a Global Green New Deal," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 4(2), pages 1-35.
  2. DURAND-LASSERVE, Olivier & PIERRU, Axel & SMEERS, Yves, 2011. "Effects of the uncertainty about global economic recovery on energy transition and CO2 price," CORE Discussion Papers 2011028, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Olivier Durand-Lasserve & Axel Pierru & Yves Smeers, 2011. "Effects of the Uncertainty about Global Economic Recovery on Energy Transition and CO2 Price," Working Papers 1105, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.

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