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Decision making under uncertainty and inertia constraints: sectoral implications of the when flexibility

  • Franck Lecocq

    (CIRED - Centre International de Recherche sur l'Environnement et le Développement - CIRAD : UMR56 - CNRS : UMR8568 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Nationale du Génie Rural des Eaux et Forêts)

  • Jean-Charles Hourcade

    (CIRED - Centre International de Recherche sur l'Environnement et le Développement - CIRAD : UMR56 - CNRS : UMR8568 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Nationale du Génie Rural des Eaux et Forêts)

  • Minh Ha-Duong

    ()

    (CIRED - Centre International de Recherche sur l'Environnement et le Développement - CIRAD : UMR56 - CNRS : UMR8568 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole Nationale du Génie Rural des Eaux et Forêts)

Current debates on climate mitigation emphasize the role of the inertia of the economic system. Our aim in this paper is to study more in depth how sectorally differentiated inertia impacts on optimal C02-emission abatement policies. Using the STARTS model, we show that optimal abatement levels and costs differ sensibly among sectors. Differential inertia is the critical determinant of this trade-off, especially in case of a 20-year delay in the action, or in an underestimation of the growth of the transportation sector. In particular, the burden of any additional abatement effort falls on the most flexible sector, i.e. the industry.Debates on mitigation emphasize the role of inertia of the economic system. This paper aims at studying more in depth how sectorally differentiated inertia should influence optimal CO2 emission abatement policies. Using a two-sector version of STARTS, we show that under perfect expectations, optimal abatement profiles and associated costs differ sensibly between a flexible and a rigid sector (transportation). In a second step, we scrutinize the role of the uncertainty by testing the case of a 20-year delay of action and an underestimated growth of the transportation sector. We do this for three concentration ceilings and we point out the magnitude of the burden which falls on the flexible sector. We derive some policy implications for the ranking of public policies and for incentive instruments to be set up at international level.

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Paper provided by HAL in its series Post-Print with number halshs-00002458.

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Date of creation: 1998
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Publication status: Published, Energy Economics, 1998, 20, 4/5, 539-555
Handle: RePEc:hal:journl:halshs-00002458
Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00002458/en/
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  1. Hourcade, Jean-Charles, 1993. "Modelling long-run scenarios : Methodology lessons from a prospective study on a low CO2 intensive country," Energy Policy, Elsevier, vol. 21(3), pages 309-326, March.
  2. Hourcade, Jean-Charles & Chapuis, Thierry, 1995. "No-regret potentials and technical innovation : A viability approach to integrated assessment of climate policies," Energy Policy, Elsevier, vol. 23(4-5), pages 433-445.
  3. Lester B. Lave, 1991. "Formulating Greenhouse Policies in a Sea of Uncertainty," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 9-22.
  4. Minh Ha-Duong & Michael Grubb & Jean-Charles Hourcade, 1997. "Influence of socioeconomic inertia and uncertainty on optimal CO2-emission abatement," Post-Print halshs-00002452, HAL.
  5. Azariadis, Costas & Guesnerie, Roger, 1986. "Sunspots and Cycles," Review of Economic Studies, Wiley Blackwell, vol. 53(5), pages 725-37, October.
  6. Hourcade, Jean-Charles & Salles, Jean-Michel & Thery, Daniel, 1992. "Ecological economics and scientific controversies. Lessons from some recent policy making in the EEC," Ecological Economics, Elsevier, vol. 6(3), pages 211-233, December.
  7. Marie N. Fagan, 1997. "Resource Depletion and Technical Change: Effects on U.S. Crude Oil Finding Costs from 1977 to 1994," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 91-105.
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