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

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Author Info
Franck Lecocq (CIRED - Centre international de recherche sur l'environnement et le développement - CIRAD : UMR56 - CNRS : UMR8568 - Ecole des Hautes Etudes en Sciences Sociales - Ecole Nationale des Ponts et Chaussées - Ecole Nationale du Génie Rural des Eaux et des 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 - Ecole Nationale des Ponts et Chaussées - Ecole Nationale du Génie Rural des Eaux et des 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 - Ecole Nationale des Ponts et Chaussées - Ecole Nationale du Génie Rural des Eaux et des Forêts)

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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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Paper provided by HAL in its series Post-Print with number halshs-00002458_v1.

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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_v1

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Related research
Keywords: Inertia; Sectoralization; Climate change;

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  1. 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. [Downloadable!]
  2. Renaud Crassous & Jean-Charles Hourcade & Olivier Sassi, 2006. "Endogenous structural change and climate targets," Post-Print halshs-00009335_v1, HAL. [Downloadable!]
  3. Ghersi, Frederic & Hourcade, Jean-Charles, 2001. "The Economics of a Lost Deal," Discussion Papers dp-01-48-, Resources For the Future. [Downloadable!]
  4. Malte Schwoon & Richard S.J. Tol, 2004. "Optimal CO2-abatement with socio-economic inertia and induced technological change," Working Papers FNU-37, Research unit Sustainability and Global Change, Hamburg University, revised Jan 2004. [Downloadable!]
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