IDEAS home Printed from https://ideas.repec.org/a/eee/ecolec/v70y2010i1p43-51.html
   My bibliography  Save this article

A quantitative minimax regret approach to climate change: Does discounting still matter?

Author

Listed:
  • Hof, Andries F.
  • van Vuuren, Detlef P.
  • den Elzen, Michel G.J.

Abstract

Using cost-benefit analysis to determine an optimal climate mitigation target is criticised, especially because i) it fails to sufficiently take into account low-probability, high-impact events, and ii) results strongly depend on the discount rate used. One of the alternative suggestions to inform policymakers about the right mitigation target that does take the risks associated with low-probability, high-impact events explicitly into account is the minimax regret criterion. We apply the minimax regret criterion quantitatively using an integrated assessment model with extreme values for climate sensitivity, damage estimates and mitigation costs. The goal is to analyse whether such a method leads to different results compared to standard cost-benefit analysis and whether the results are still sensitive to the discount rate used. We find that the minimax regret approach leads to more stringent and robust climate targets for relatively low discount rates and if both a high climate sensitivity and high damage estimates are assumed. If one of these assumptions does not hold, the difference between the minimax regret approach and standard cost-benefit analysis is much smaller. Therefore, we conclude that the discount rate used can still be of vital importance even when applying a minimax regret approach.

Suggested Citation

  • Hof, Andries F. & van Vuuren, Detlef P. & den Elzen, Michel G.J., 2010. "A quantitative minimax regret approach to climate change: Does discounting still matter?," Ecological Economics, Elsevier, vol. 70(1), pages 43-51, November.
  • Handle: RePEc:eee:ecolec:v:70:y:2010:i:1:p:43-51
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0921-8009(10)00119-9
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Tony Prato, 2008. "Accounting for risk and uncertainty in determining preferred strategies for adapting to future climate change," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 13(1), pages 47-60, January.
    2. Martin L. Weitzman, 2001. "Gamma Discounting," American Economic Review, American Economic Association, vol. 91(1), pages 260-271, March.
    3. Thomas Sterner & U. Martin Persson, 2008. "An Even Sterner Review: Introducing Relative Prices into the Discounting Debate," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 2(1), pages 61-76, Winter.
    4. William D. Nordhaus, 2007. "A Review of the Stern Review on the Economics of Climate Change," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 686-702, September.
    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. Martin L. Weitzman, 2007. "A Review of the Stern Review on the Economics of Climate Change," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 703-724, September.
    7. Richard T. Woodward & Richard C. Bishop, 1997. "How to Decide When Experts Disagree: Uncertainty-Based Choice Rules in Environmental Policy," Land Economics, University of Wisconsin Press, vol. 73(4), pages 492-507.
    8. Richard Tol, 2002. "Estimates of the Damage Costs of Climate Change, Part II. Dynamic Estimates," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 21(2), pages 135-160, February.
    9. Clarke Harry, 2008. "Classical decision rules and adaptation to climate change ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 52(4), pages 487-504, December.
    10. Richard B. Howarth, 2003. "Discounting and Uncertainty in Climate Change Policy Analysis," Land Economics, University of Wisconsin Press, vol. 79(3), pages 369-381.
    11. Martin L. Weitzman, 2009. "On Modeling and Interpreting the Economics of Catastrophic Climate Change," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 1-19, February.
    12. 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.
    13. Solow, Robert M, 1974. "The Economics of Resources or the Resources of Economics," American Economic Review, American Economic Association, vol. 64(2), pages 1-14, May.
    14. Nordhaus, William D., 1993. "Rolling the 'DICE': an optimal transition path for controlling greenhouse gases," Resource and Energy Economics, Elsevier, vol. 15(1), pages 27-50, March.
    15. Tol, Richard S. J., 2002. "Welfare specifications and optimal control of climate change: an application of fund," Energy Economics, Elsevier, vol. 24(4), pages 367-376, July.
    16. van Vuuren, Detlef P. & de Vries, Bert & Eickhout, Bas & Kram, Tom, 2004. "Responses to technology and taxes in a simulated world," Energy Economics, Elsevier, vol. 26(4), pages 579-601, July.
    17. Tol, Richard S. J., 2009. "The Feasibility of Low Concentration Targets: An Application of FUND," Papers WP285, Economic and Social Research Institute (ESRI).
    18. den Elzen, Michel G. J. & de Moor, Andre P. G., 2002. "Analyzing the Kyoto Protocol under the Marrakesh Accords: economic efficiency and environmental effectiveness," Ecological Economics, Elsevier, vol. 43(2-3), pages 141-158, December.
    19. Camilla Froyn, 2005. "Decision Criteria, Scientific Uncertainty, and the Globalwarming Controversy," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 10(2), pages 183-211, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. W. Botzen & Jeroen Bergh, 2014. "Specifications of Social Welfare in Economic Studies of Climate Policy: Overview of Criteria and Related Policy Insights," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 58(1), pages 1-33, May.
    2. van den Bergh, J.C.J.M. & Botzen, W.J.W., 2015. "Monetary valuation of the social cost of CO2 emissions: A critical survey," Ecological Economics, Elsevier, vol. 114(C), pages 33-46.
    3. Verbruggen, Aviel, 2013. "Revocability and reversibility in societal decision-making," Ecological Economics, Elsevier, vol. 85(C), pages 20-27.
    4. Iverson, Terrence, 2013. "Minimax regret discounting," Journal of Environmental Economics and Management, Elsevier, vol. 66(3), pages 598-608.
    5. Sain, Gustavo & Loboguerrero, Ana María & Corner-Dolloff, Caitlin & Lizarazo, Miguel & Nowak, Andreea & Martínez-Barón, Deissy & Andrieu, Nadine, 2017. "Costs and benefits of climate-smart agriculture: The case of the Dry Corridor in Guatemala," Agricultural Systems, Elsevier, vol. 151(C), pages 163-173.
    6. Baker, Erin & Olaleye, Olaitan & Aleluia Reis, Lara, 2015. "Decision frameworks and the investment in R&D," Energy Policy, Elsevier, vol. 80(C), pages 275-285.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecolec:v:70:y:2010:i:1:p:43-51. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/ecolecon .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.