IDEAS home Printed from https://ideas.repec.org/p/ags/nceewp/280867.html
   My bibliography  Save this paper

Climate Response Uncertainty and the Expected Benefits of Greenhouse Gas Emissions Reductions

Author

Listed:
  • Newbold, Stephen C.
  • Daigneault, Adam

Abstract

Some recent research suggests that uncertainty about the response of the climate system to atmospheric greenhouse gas (GHG) concentrations can have a disproportionately large influence on benefits estimates for climate change policies, potentially even dominating the effect of the discount rate. In this paper we conduct a series of numerical simulation experiments to investigate the quantitative significance of climate response uncertainty for economic assessments of climate change. First we characterize climate uncertainty by constructing two probability density functions—a Bayesian model-averaged and a Bayesian updated version—based on a combination of uncertainty ranges for climate sensitivity reported in the scientific literature. Next we estimate the willingness to pay of a representative agent for a range of emissions reduction policies using two simplified economic models. Our results illustrate the potential for large risk premiums in benefits estimates as suggested by the recent theoretical work on climate response uncertainty, and they show that the size and even the sign of the risk premium may depend crucially on how the posterior distribution describing the overall climate sensitivity uncertainty is constructed and on the specific shape of the damage function.

Suggested Citation

  • Newbold, Stephen C. & Daigneault, Adam, 2008. "Climate Response Uncertainty and the Expected Benefits of Greenhouse Gas Emissions Reductions," National Center for Environmental Economics-NCEE Working Papers 280867, United States Environmental Protection Agency (EPA).
  • Handle: RePEc:ags:nceewp:280867
    DOI: 10.22004/ag.econ.280867
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/280867/files/NCEE2008-06.pdf
    Download Restriction: no

    File URL: https://libkey.io/10.22004/ag.econ.280867?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. 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.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. Richard S. J. Tol & In Chang Hwang & Frédéric Reynès, 2012. "The Effect of Learning on Climate Policy under Fat-tailed Uncertainty," Working Paper Series 5312, Department of Economics, University of Sussex Business School.
    3. Simon Levin & Anastasios Xepapadeas, 2021. "On the Coevolution of Economic and Ecological Systems," Annual Review of Resource Economics, Annual Reviews, vol. 13(1), pages 355-377, October.
    4. Hahn Robert, 2010. "Designing Smarter Regulation with Improved Benefit-Cost Analysis," Journal of Benefit-Cost Analysis, De Gruyter, vol. 1(1), pages 1-19, July.
    5. Bommier, Antoine & Lanz, Bruno & Zuber, Stéphane, 2015. "Models-as-usual for unusual risks? On the value of catastrophic climate change," Journal of Environmental Economics and Management, Elsevier, vol. 74(C), pages 1-22.
    6. Lamperti, Francesco & Bosetti, Valentina & Roventini, Andrea & Tavoni, Massimo & Treibich, Tania, 2021. "Three green financial policies to address climate risks," Journal of Financial Stability, Elsevier, vol. 54(C).
    7. Matthew J. Holian & Matthew E. Kahn, 2014. "Household Demand for Low Carbon Public Policies: Evidence from California," NBER Working Papers 19965, National Bureau of Economic Research, Inc.
    8. Steve Newbold & Charles Griffiths & Christopher C. Moore & Ann Wolverton & Elizabeth Kopits, 2010. "The "Social Cost of Carbon" Made Simple," NCEE Working Paper Series 201007, National Center for Environmental Economics, U.S. Environmental Protection Agency, revised Aug 2010.
    9. Kenneth Gillingham & William D. Nordhaus & David Anthoff & Geoffrey Blanford & Valentina Bosetti & Peter Christensen & Haewon McJeon & John Reilly & Paul Sztorc, 2015. "Modeling Uncertainty in Climate Change: A Multi-Model Comparison," NBER Working Papers 21637, National Bureau of Economic Research, Inc.
    10. Freeman, Mark C. & Wagner, Gernot & Zeckhauser, Richard J., 2015. "Climate Sensitivity Uncertainty: When Is Good News Bad?," Working Paper Series rwp15-002, Harvard University, John F. Kennedy School of Government.
    11. Melissa Dell & Benjamin F. Jones & Benjamin A. Olken, 2014. "What Do We Learn from the Weather? The New Climate-Economy Literature," Journal of Economic Literature, American Economic Association, vol. 52(3), pages 740-798, September.
    12. Matthias Schmidt & Hermann Held & Elmar Kriegler & Alexander Lorenz, 2013. "Climate Policy Under Uncertain and Heterogeneous Climate Damages," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 54(1), pages 79-99, January.
    13. Francesco Lamperti & Giovanni Dosi & Mauro Napoletano & Andrea Roventini & Alessandro Sapio, 2018. "And then he wasn't a she : Climate change and green transitions in an agent-based integrated assessment model," Working Papers hal-03443464, HAL.
    14. Seth D. Baum & Timothy M. Maher & Jacob Haqq-Misra, 2013. "Double catastrophe: intermittent stratospheric geoengineering induced by societal collapse," Environment Systems and Decisions, Springer, vol. 33(1), pages 168-180, March.
    15. Støstad, Morten Nyborg & Cowell, Frank, 2024. "Inequality as an externality: Consequences for tax design," Journal of Public Economics, Elsevier, vol. 235(C).
    16. Robert J. R. Elliott & Ingmar Schumacher & Cees Withagen, 2020. "Suggestions for a Covid-19 Post-Pandemic Research Agenda in Environmental Economics," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 76(4), pages 1187-1213, August.
    17. Pindyck, Robert S., 2019. "The social cost of carbon revisited," Journal of Environmental Economics and Management, Elsevier, vol. 94(C), pages 140-160.
    18. Duersch, Peter & Römer, Daniel & Roth, Benjamin, 2013. "Intertemporal stability of ambiguity preferences," Working Papers 0548, University of Heidelberg, Department of Economics.
    19. Luca Gerotto & Paolo Pellizzari, 2021. "A replication of Pindyck’s willingness to pay: on the efforts required to obtain results," SN Business & Economics, Springer, vol. 1(5), pages 1-25, May.
    20. John A. List, 2024. "Optimally generate policy-based evidence before scaling," Nature, Nature, vol. 626(7999), pages 491-499, February.

    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:ags:nceewp:280867. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/nepgvus.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.