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Climate Policies under Climate Model Uncertainty: Max-Min and Min-Max Regret

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  • Armon Rezai
  • Rick van der Ploeg

Abstract

Temperature responses and optimal climate policies depend crucially on the choice of a particular climate model. To illustrate, the temperature responses to given emission reduction paths implied by the climate modules of the well-known integrated assessments models DICE, FUND and PAGE are described and compared. A dummy temperature module based on the climate denialists’ view is added. Using a simple welfare-maximising growth model of the global economy, the sensitivity of the optimal carbon price, renewable energy subsidy and energy transition to each of these climate models is discussed. The paper then derives max-min, max-max and min-max regret policies to deal with this particular form of climate (model) uncertainty and with climate scepticism. The max-min or min-max regret climate policies rely on a non-sceptic view of global warming and lead to a substantial and moderate amount of caution, respectively. The max-max leads to no climate policies in line with the view of climate sceptics.

Suggested Citation

  • Armon Rezai & Rick van der Ploeg, 2017. "Climate Policies under Climate Model Uncertainty: Max-Min and Min-Max Regret," CESifo Working Paper Series 6626, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_6626
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:ecolec:v:146:y:2018:i:c:p:164-172 is not listed on IDEAS
    2. Loic Berger & Massimo Marinacci, 2017. "Model Uncertainty in Climate Change Economics," Working Papers 616, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    3. Rezai, Armon & Taylor, Lance & Foley, Duncan, 2018. "Economic Growth, Income Distribution, and Climate Change," Ecological Economics, Elsevier, vol. 146(C), pages 164-172.

    More about this item

    Keywords

    carbon price; renewable energy subsidy; temperature modules; climate model uncertainty; climate sceptics; max-min; max-max; min-max regret;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • 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

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