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

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Author Info

  • Carlo Carraro

    ()
    (Department of Economics, University Of Venice Cà Foscari)

  • Valentina Bosetti

    (Fondazione Eni Enrico Mattei and CMCC)

  • Alessandra Sgobbi

    (Fondazione Eni Enrico Mattei and CMCC)

  • Massimo Tavoni

    (Fondazione Eni Enrico Mattei, Catholic University of Milan and CMCC)

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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Bibliographic Info

Paper provided by Department of Economics, University of Venice "Ca' Foscari" in its series Working Papers with number 2008_27.

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Length: 24
Date of creation: 2008
Date of revision:
Handle: RePEc:ven:wpaper:2008_27

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Keywords: Uncertainty; Climate Policy; Stabilisation Costs; Delayed Action;

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References

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  1. Bosetti, Valentina & Tavoni, Massimo, 2009. "Uncertain R&D, backstop technology and GHGs stabilization," Energy Economics, Elsevier, vol. 31(Supplemen), pages S18-S26.
  2. 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.
  3. Gjerde, Jon & Grepperud, Sverre & Kverndokk, Snorre, 1999. "Optimal climate policy under the possibility of a catastrophe," Resource and Energy Economics, Elsevier, vol. 21(3-4), pages 289-317, August.
  4. 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.
  5. Ingham, Alan & Ma, Jie & Ulph, Alistair, 2007. "Climate change, mitigation and adaptation with uncertainty and learning," Energy Policy, Elsevier, vol. 35(11), pages 5354-5369, November.
  6. 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.
  7. Keller, Klaus & Bolker, Benjamin M. & Bradford, D.F.David F., 2004. "Uncertain climate thresholds and optimal economic growth," Journal of Environmental Economics and Management, Elsevier, vol. 48(1), pages 723-741, July.
  8. 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. Matthias Schmidt & Alexander Lorenz & Hermann Held & Elmar Kriegler, 2011. "Climate targets under uncertainty: challenges and remedies," Climatic Change, Springer, vol. 104(3), pages 783-791, February.
  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. Lorenza Campagnolo & Carlo Carraro & Marinella Davide & Fabio Eboli & Elisa Lanzi & Ramiro Parrado, 2013. "Can Climate Policy Enhance Sustainability?," Working Papers 2013.10, Fondazione Eni Enrico Mattei.
  4. BRECHET, Thierry & THENIE, Julien & ZEIMES, Thibaut & ZUBER, Stéphane, 2010. "The benefits of cooperation under uncertainty: the case of climate change," CORE Discussion Papers 2010062, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. 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.
  6. Monjon, Stéphanie & Tavoni, Massimo & Steckel, Jan & Luderer, Gunnar & Jakob, Michael, 2011. "Time to act now ? Assessing the costs of delaying climate measures and benefits of early action," Economics Papers from University Paris Dauphine 123456789/7943, Paris Dauphine University.

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