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Decision making under uncertainty and inertia constraints: sectoral implications of the when flexibility

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  • Franck Lecocq

    (CIRED - Centre International de Recherche sur l'Environnement et le Développement - CIRAD : UMR56 - CNRS : UMR8568 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Nationale du Génie Rural des Eaux et Forêts)

  • Jean-Charles Hourcade

    (CIRED - Centre International de Recherche sur l'Environnement et le Développement - CIRAD : UMR56 - CNRS : UMR8568 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Nationale du Génie Rural des Eaux et Forêts)

  • Minh Ha-Duong

    ()
    (CIRED - Centre International de Recherche sur l'Environnement et le Développement - CIRAD : UMR56 - CNRS : UMR8568 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Nationale du Génie Rural des Eaux et Forêts)

Abstract

Current debates on climate mitigation emphasize the role of the inertia of the economic system. Our aim in this paper is to study more in depth how sectorally differentiated inertia impacts on optimal C02-emission abatement policies. Using the STARTS model, we show that optimal abatement levels and costs differ sensibly among sectors. Differential inertia is the critical determinant of this trade-off, especially in case of a 20-year delay in the action, or in an underestimation of the growth of the transportation sector. In particular, the burden of any additional abatement effort falls on the most flexible sector, i.e. the industry.Debates on mitigation emphasize the role of inertia of the economic system. This paper aims at studying more in depth how sectorally differentiated inertia should influence optimal CO2 emission abatement policies. Using a two-sector version of STARTS, we show that under perfect expectations, optimal abatement profiles and associated costs differ sensibly between a flexible and a rigid sector (transportation). In a second step, we scrutinize the role of the uncertainty by testing the case of a 20-year delay of action and an underestimated growth of the transportation sector. We do this for three concentration ceilings and we point out the magnitude of the burden which falls on the flexible sector. We derive some policy implications for the ranking of public policies and for incentive instruments to be set up at international level.

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Bibliographic Info

Paper provided by HAL in its series Post-Print with number halshs-00002458.

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Date of creation: 1998
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Publication status: Published, Energy Economics, 1998, 20, 4/5, 539-555
Handle: RePEc:hal:journl:halshs-00002458

Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00002458/en/
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Related research

Keywords: Inertia; Sectoralization; Climate change;

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References

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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.:
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  1. Hourcade, Jean-Charles & Chapuis, Thierry, 1995. "No-regret potentials and technical innovation : A viability approach to integrated assessment of climate policies," Energy Policy, Elsevier, vol. 23(4-5), pages 433-445.
  2. Marie N. Fagan, 1997. "Resource Depletion and Technical Change: Effects on U.S. Crude Oil Finding Costs from 1977 to 1994," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 91-105.
  3. Hourcade, Jean-Charles & Salles, Jean-Michel & Thery, Daniel, 1992. "Ecological economics and scientific controversies. Lessons from some recent policy making in the EEC," Ecological Economics, Elsevier, vol. 6(3), pages 211-233, December.
  4. Azariadis, Costas & Guesnerie, Roger, 1986. "Sunspots and Cycles," Review of Economic Studies, Wiley Blackwell, vol. 53(5), pages 725-37, October.
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Citations

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Cited by:
  1. Hallegatte, Stephane & Heal, Geoffrey & Fay, Marianne & Treguer, David, 2011. "From growth to green growth -- a framework," Policy Research Working Paper Series 5872, The World Bank.
  2. Adrien Vogt-Schilb & Stéphane Hallegatte, 2013. "Marginal abatement cost curves and the optimal timing of mitigation measures," Working Papers hal-00916328, HAL.
  3. Adrien Vogt-Schilb & Stéphane Hallegatte, 2011. "When Starting with the Most Expensive Option Makes Sense On Marginal Abatement Cost Curves and Optimal Abatement Pathways," CIRED Working Papers hal-00626261, HAL.
  4. Vogt-Schilb, Adrien & Meunier, Guy & Hallegatte, Stephane, 2013. "Should marginal abatement costs differ across sectors ? the effect of low-carbon capital accumulation," Policy Research Working Paper Series 6415, The World Bank.
  5. Adrien Vogt-Schilb & Stéphane Hallegatte, 2014. "Marginal abatement cost curves and the optimal timing of mitigation measures," Post-Print hal-00916328, HAL.
  6. Adrien Vogt-Schilb & Guy Meunier & Stéphane Hallegatte, 2013. "Should marginal abatement costs differ across sectors? The effect of low-carbon capital accumulation," Working Papers hal-00850682, HAL.
  7. Hourcade, Jean-Charles & Salles, Jean-Michel & Thery, Daniel, 1992. "Ecological economics and scientific controversies. Lessons from some recent policy making in the EEC," Ecological Economics, Elsevier, vol. 6(3), pages 211-233, December.
  8. Strand, Jon & Miller, Sebastian & Siddiqui, Sauleh, 2011. "Infrastructure investments under uncertainty with the possibility of retrofit : theory and simulations," Policy Research Working Paper Series 5516, The World Bank.
  9. Malte Schwoon & Richard S.J. Tol, 2006. "Optimal CO2-abatement with Socio-economic Inertia and Induced Technological Change," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 25-60.
  10. Lecocq, Franck & Crassous, Renaud, 2003. "International climate regime beyond 2012 - are quota allocation rules robust to uncertainty?," Policy Research Working Paper Series 3000, The World Bank.
  11. Renaud Crassous & Jean Charles Hourcade & Olivier Sassi, 2006. "Endogenous Structural Change and Climate Targets : Modeling experiments with Imaclim-R," Working Papers hal-00866411, HAL.
  12. Adrien Vogt-Schilb & Stéphane Hallegatte, 2013. "Marginal abatement cost curves and the optimal timing of mitigation measures," CIRED Working Papers hal-00916328, HAL.
  13. Renaud Crassous & Jean Charles Hourcade & Olivier Sassi, 2006. "Endogenous Structural Change and Climate Targets : Modeling experiments with Imaclim-R," CIRED Working Papers hal-00866411, HAL.
  14. Adrien Vogt-Schilb & Guy Meunier & Stéphane Hallegatte, 2012. "How inertia and limited potentials affect the timing of sectoral abatements in optimal climate policy," Post-Print hal-00722574, HAL.
  15. Renaud Crassous & Jean-Charles Hourcade & Olivier Sassi, 2006. "Endogenous structural change and climate targets," Post-Print halshs-00009335, HAL.
  16. Ghersi, Frederic & Hourcade, Jean-Charles, 2001. "The Economics of a Lost Deal," Discussion Papers dp-01-48-, Resources For the Future.
  17. Jean Charles Hourcade & Franck Lecocq, 2003. "Le taux d'actualisation contre le principe de précaution ? Leçons à partir du cas des politiques climatiques," CIRED Working Papers halshs-00000967, HAL.
  18. Adrien Vogt-Schilb & Stéphane Hallegatte, 2011. "When Starting with the Most Expensive Option Makes Sense On Marginal Abatement Cost Curves and Optimal Abatement Pathways," Working Papers hal-00626261, HAL.

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