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Time is Running Out: The 2°C Target and Optimal Climate Policies

Author

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  • Yu-Fu Chen
  • Michael Funke
  • Nicole Glanemann

Abstract

The quintessence of recent natural science studies is that the 2°C target can only be achieved with massive emission reductions in the next few years. The central twist of this paper is the addition of this limited time to act into a non-perpetual real options framework analysing optimal climate policy under uncertainty. The window-of-opportunity modelling setup shows that the limited time to act may spark a trend reversal in the direction of low-carbon alternatives. However, the implementation of a climate policy is evaded by high uncertainty about possible climate pathways.

Suggested Citation

  • Yu-Fu Chen & Michael Funke & Nicole Glanemann, 2011. "Time is Running Out: The 2°C Target and Optimal Climate Policies," CESifo Working Paper Series 3664, CESifo.
  • Handle: RePEc:ces:ceswps:_3664
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    References listed on IDEAS

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    More about this item

    Keywords

    climate policy; CO2 scenarios; non-perpetual real options;
    All these keywords.

    JEL classification:

    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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