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Regional Climate Policy under Deep Uncertainty

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  • William Brock
  • Anastasios Xepapadeas

Abstract

We study climate change policies by using the novel pattern scaling approach of regional transient climate response to develop an economyclimate model under conditions of deep uncertainty associated with: (i) temperature dynamics, (ii) regional climate change damages, and (iii) policy in the form of carbon taxes. We analyze both cooperative and noncooperative outcomes in a regional model. Under deep uncertainty, robust control policies are more conservative regarding emissions, the higher the aversion to ambiguity, while damage uncertainty seems to produce more conservative behavior than climate dynamics uncertainty. Cooperative policies tend to be more conservative than noncooperative policies for similar concerns about uncertainty but, as concerns about uncertainty increase, policies tend to move closer to each other. Asymmetries in concerns about uncertainty tend to produce large deviations in regional emissions policy at the noncooperative solution. If aversion to ambiguity is sufficiently high, optimal regulation aiming to attain a cooperative steady state or a steady state that satisfies conditions for a Nash equilibrium might not be possible. The result is associated with the existence of regional hot spots and temperature spillovers across regions, a situation which emerges in the real world. In such cases, deep uncertainty about the impacts of climate change makes robust regulation infeasible.

Suggested Citation

  • William Brock & Anastasios Xepapadeas, 2019. "Regional Climate Policy under Deep Uncertainty," DEOS Working Papers 1901, Athens University of Economics and Business.
  • Handle: RePEc:aue:wpaper:1901
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    File URL: http://wpa.deos.aueb.gr/docs/Regional.Climate.Policy.under.Deep.Uncertainty.pdf
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    References listed on IDEAS

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    1. 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.
    2. Athanassoglou, Stergios & Xepapadeas, Anastasios, 2012. "Pollution control with uncertain stock dynamics: When, and how, to be precautious," Journal of Environmental Economics and Management, Elsevier, vol. 63(3), pages 304-320.
    3. William Nordhaus, 2014. "Estimates of the Social Cost of Carbon: Concepts and Results from the DICE-2013R Model and Alternative Approaches," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 1(1), pages 000.
    4. Yongyang Cai & William Brock & Anastasios Xepapadeas & Kenneth Judd, 2018. "Climate Policy under Cooperation and Competition between Regions with Spatial Heat Transport," NBER Working Papers 24473, National Bureau of Economic Research, Inc.
    5. Heutel, Garth & Moreno-Cruz, Juan & Shayegh, Soheil, 2016. "Climate tipping points and solar geoengineering," Journal of Economic Behavior & Organization, Elsevier, vol. 132(PB), pages 19-45.
    6. Lars Peter Hansen & Thomas J. Sargent, 2001. "Acknowledging Misspecification in Macroeconomic Theory," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(3), pages 519-535, July.
    7. repec:aea:aecrev:v:107:y:2017:i:10:p:2947-57 is not listed on IDEAS
    8. Brock, William A. & Engström, Gustav & Grass, Dieter & Xepapadeas, Anastasios, 2013. "Energy balance climate models and general equilibrium optimal mitigation policies," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2371-2396.
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    Cited by:

    1. Lucas Bretschger & Karen Pittel, 2019. "Twenty Key Questions in Environmental and Resource Economics," CER-ETH Economics working paper series 19/328, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.

    More about this item

    Keywords

    Regional climate change policy; Regional temperature anomalies; Deep uncertainty; Robust control; Cooperative and noncooperative solutions.;

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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