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Cost-effective management of a eutrophicated sea in the presence of uncertain technological development and climate change

Author

Listed:
  • Gren, Ing-Marie

    () (Department of Economics, Swedish University of Agricultural Sciences)

  • Lindqvist, Martin

    () (Department of Economics, Swedish University of Agricultural Sciences)

Abstract

We analyse effects of uncertain climate change and technological development on cost-effective abatement of nitrogen and phosphorus for a eutrophied sea. A dynamic model is developed which accounts for differences in the sea’s adjustment to the loads of the two nutrients, uncertainty in climate change effects with probabilistic constraints on nutrient pool targets, and uncertain technological development in a mean-variance framework. The analytical results show that introduction of uncertainty increases abatement costs but that the effect on marginal abatement cost differ for the two types of uncertainty. Marginal abatement cost is increased by technological uncertainty but decreased by the reduction in the risk discount of climate change uncertainties. It is also shown that abatement along the optimal time path is delayed by the introduction of technological uncertainty, but made earlier when considering climate change uncertainty. An application to the eutrophied Baltic Sea indicates that climate change and technological development can reduce total abatement cost by 1/3, but also increase it considerably when uncertainty is included.

Suggested Citation

  • Gren, Ing-Marie & Lindqvist, Martin, 2014. "Cost-effective management of a eutrophicated sea in the presence of uncertain technological development and climate change," Working Paper Series 2014:1, Swedish University of Agricultural Sciences, Department Economics.
  • Handle: RePEc:hhs:slueko:2014_001
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    File URL: http://pub.epsilon.slu.se/10981/
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    Keywords

    cost-effectiveness; nutrients; climate change; technological development; uncertainty; Baltic Sea;

    JEL classification:

    • D99 - Microeconomics - - Micro-Based Behavioral Economics - - - Other
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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