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Ambiguity Reduction by Objective Model Selection, with an Application to the Costs of the EU 2030 Climate Targets

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  • Richard S. J. Tol

    (Department of Economics, University of Sussex, Jubilee Building, Falmer BN1 9SL, UK
    Institute for Environmental Studies, Vrije Universiteit Amsterdam, Amsterdam, The Netherlands
    Department of Spatial Economics, Vrije Universiteit Amsterdam, Amsterdam, The Netherlands
    Tinbergen Institute, Amsterdam, The Netherlands)

Abstract

I estimate the cost of meeting the EU 2030 targets for greenhouse gas emission reduction, using statistical emulators of ten alternative models. Assuming a first-best policy implementation, I find that total and marginal costs are modest. The statistical emulators allow me to compute the risk premiums, which are small, because the EU is rich and the policy impact is small. The ensemble of ten models allows me to compute the ambiguity premium, which is small for the same reason. I construct a counterfactual estimate of recent emissions without the climate policy and use that to test the predictive skill of the ten models. The models that show the lowest cost of emission reduction also have the lowest skill for Europe in recent times.

Suggested Citation

  • Richard S. J. Tol, 2014. "Ambiguity Reduction by Objective Model Selection, with an Application to the Costs of the EU 2030 Climate Targets," Energies, MDPI, vol. 7(11), pages 1-11, October.
    • Handle: RePEc:gam:jeners:v:7:y:2014:i:11:p:6886-6896:d:41725
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    References listed on IDEAS

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    1. 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.
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    10. Richard Tol, 2012. "Leviathan carbon taxes in the short run," Climatic Change, Springer, vol. 114(2), pages 409-415, September.
    11. Antony Millner & Simon Dietz & Geoffrey Heal, 2013. "Scientific Ambiguity and Climate Policy," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 55(1), pages 21-46, May.
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    Cited by:

    1. Richard S. J. Tol, 2021. "Europe’s Climate Target for 2050: An Assessment," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 56(6), pages 330-335, November.
    2. Richard S.J. Tol, 2018. "Energy and Climate," Working Paper Series 1618, Department of Economics, University of Sussex Business School.
    3. Huntington, Hillard G., 2021. "Model evaluation for policy insights: Reflections on the forum process," Energy Policy, Elsevier, vol. 156(C).
    4. Taran Fæhn, Cathrine Hagem, Lars Lindholt, Ståle Mæland, and Knut Einar Rosendahl, 2017. "Climate policies in a fossil fuel producing country demand versus supply side policies," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).

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    More about this item

    Keywords

    climate policy; European Union; carbon price; forecast skill; uncertainty;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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