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Abatement Cost Uncertainty and Policy Instrument Selection under a Stringent Climate Policy. A Dynamic Analysis

Author

Listed:
  • Valentina Bosetti

    (Fondazione Eni Enrico Mattei)

  • Alexander Golub

    (Environmental Defense)

  • Emanuele Massetti

    (Fondazione Eni Enrico Mattei and Università Cattolica del Sacro Cuore)

  • Massimo Tavoni

    (Fondazione Eni Enrico Mattei and Università Cattolica del Sacro Cuore)

Abstract

This paper investigates the relative economic and environmental outcomes of price versus quantity mechanisms to control GHG emissions when abatement costs are uncertain. In particular, we evaluate the impacts on policy costs, CO2 emissions and energy R&D for a stringent mitigation target of 550 ppmv CO2 equivalent (i.e. 450 for CO2 only) concentrations. The analysis is performed in an optimal growth framework via Monte Carlo simulations of the integrated assessment model WITCH (World Induced Technical Change Hybrid). Results indicate that the price instrument stochastically dominates the quantity instrument when a stringent stabilization policy is in place.

Suggested Citation

  • Valentina Bosetti & Alexander Golub & Emanuele Massetti & Massimo Tavoni, 2008. "Abatement Cost Uncertainty and Policy Instrument Selection under a Stringent Climate Policy. A Dynamic Analysis," Working Papers 2008.15, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2008.15
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    References listed on IDEAS

    as
    1. Valentina Bosetti & Carlo Carraro & Marzio Galeotti & Emanuele Massetti & Massimo Tavoni, 2006. "WITCH. A World Induced Technical Change Hybrid Model," Working Papers 2006_46, Department of Economics, University of Venice "Ca' Foscari".
    2. Gabriele C. Hegerl & Thomas J. Crowley & William T. Hyde & David J. Frame, 2006. "Climate sensitivity constrained by temperature reconstructions over the past seven centuries," Nature, Nature, vol. 440(7087), pages 1029-1032, April.
    3. Stiglitz Joseph, 2006. "A New Agenda for Global Warming," The Economists' Voice, De Gruyter, vol. 3(7), pages 1-4, July.
    4. Popp, David, 2004. "ENTICE: endogenous technological change in the DICE model of global warming," Journal of Environmental Economics and Management, Elsevier, vol. 48(1), pages 742-768, July.
    5. 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.
    6. Newell, Richard G. & Pizer, William A., 2003. "Regulating stock externalities under uncertainty," Journal of Environmental Economics and Management, Elsevier, vol. 45(2, Supple), pages 416-432, March.
    7. Jones, Charles I, 1995. "R&D-Based Models of Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 759-784, August.
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    More about this item

    Keywords

    Abatement Costs; Climate Policy;

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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