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Delayed Action and Uncertain Targets. How Much Will Climate Policy Cost?

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  • Bosetti, Valentina
  • Carraro, Carlo
  • Sgobbi, Alessandra
  • Tavoni, Massimo

Abstract

Despite the growing concern about actual on-going climate change, there is little consensus about the scale and timing of actions needed to stabilise the concentrations of greenhouse gases. Many countries are unwilling to implement effective mitigation strategies, at least in the short-term, and no agreement on an ambitious global stabilisation target has yet been reached. It is thus likely that some, if not all countries, will delay the adoption of effective climate policies. This delay will affect the cost of future policy measures that will be required to abate an even larger amount of emissions. What additional economic cost of mitigation measures will this delay imply? At the same time, the uncertainty surrounding the global stabilisation target to be achieved crucially affects short-term investment and policy decisions. What will this uncertainty cost? Is there a hedging strategy that decision makers can adopt to cope with delayed action and uncertain targets? This paper addresses these questions by quantifying the economic implications of delayed mitigation action, and by computing the optimal abatement strategy in the presence of uncertainty about a global stabilisation target (which will be agreed upon in future climate negotiations). Results point to short-term inaction as the key determinant for the economic costs of ambitious climate policies. They also indicate that there is an effective hedging strategy that could minimise the cost of climate policy under uncertainty, and that a short-term moderate climate policy would be a good strategy to reduce the costs of delayed action and to cope with uncertainty about the outcome of future climate negotiations. By contrast, an insufficient short-term effort significantly increases the costs of compliance in the long-term.

Suggested Citation

  • Bosetti, Valentina & Carraro, Carlo & Sgobbi, Alessandra & Tavoni, Massimo, 2008. "Delayed Action and Uncertain Targets. How Much Will Climate Policy Cost?," CEPR Discussion Papers 6973, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:6973
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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.
    2. Valentina Bosetti & Carlo Carraro & Massimo Tavoni, 2008. "Delayed Participation of Developing Countries to Climate Agreements: Should Action in the EU and US be Postponed?," CESifo Working Paper Series 2445, CESifo Group Munich.
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    Citations

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    Cited by:

    1. Olivier Durand-Lasserve & Axel Pierru & Yves Smeers, 2011. "Effects of the Uncertainty about Global Economic Recovery on Energy Transition and CO2 Price," Working Papers 1105, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
    2. Lorenza Campagnolo & Carlo Carraro & Marinella Davide & Fabio Eboli & Elisa Lanzi & Ramiro Parrado, 2016. "Can climate policy enhance sustainability?," Climatic Change, Springer, vol. 137(3), pages 639-653, August.
    3. Michael Jakob & Gunnar Luderer & Jan Steckel & Massimo Tavoni & Stephanie Monjon, 2012. "Time to act now? Assessing the costs of delaying climate measures and benefits of early action," Climatic Change, Springer, vol. 114(1), pages 79-99, September.
    4. Matthias Schmidt & Alexander Lorenz & Hermann Held & Elmar Kriegler, 2011. "Climate targets under uncertainty: challenges and remedies," Climatic Change, Springer, vol. 104(3), pages 783-791, February.
    5. Rai, Varun & Funkhouser, Erik, 2015. "Emerging insights on the dynamic drivers of international low-carbon technology transfer," Renewable and Sustainable Energy Reviews, Elsevier, vol. 49(C), pages 350-364.
    6. Barbier, Edward B., 2010. "Global governance: the G20 and a Global Green New Deal," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 4, pages 1-35.
    7. BRECHET, Thierry & THENIE, Julien & ZEIMES, Thibaut & ZUBER, Stéphane, 2010. "The benefits of cooperation under uncertainty: the case of climate change," CORE Discussion Papers 2010062, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

    More about this item

    Keywords

    Climate Policy; Delayed Action; Stabilisation Costs; Uncertainty;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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