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Ambiguity reduction by objective model selection, with an application to the costs of the EU 2030 climate targets

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  • Richard Tol

    (Department of Economics, University of Sussex, Falmer, United Kingdom
    Institute for Environmental Studies and Department of Spatial Economic, Vrije Universiteit, Amsterdam, The Netherlands
    Tinbergen Institute, Amsterdam, The Netherlands
    CESifo, Munich, Germany)

Abstract

I estimate the cost of meeting the EU 2030 targets for greenhouse gas emission reduction, using statistical emulators of ten alternative models. Assuming a first-best policy implementation, I find that total and marginal costs are modest. The statistical emulators allow me to compute the risk premiums, which are small because the EU is rich and the policy impact is small. The ensemble of ten models allows me to compute the ambiguity premium, which is small for the same reason. I construct a counterfactual estimate of recent emissions without climate policy, and use that test the predictive skill of the ten models. The models that show the lowest cost of emission reduction also have the lowest skill.

Suggested Citation

  • Richard Tol, 2014. "Ambiguity reduction by objective model selection, with an application to the costs of the EU 2030 climate targets," Working Paper Series 7114, Department of Economics, University of Sussex Business School.
    • Handle: RePEc:sus:susewp:7114
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    File URL: http://www.sussex.ac.uk/economics/documents/wps-71-2014.pdf
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    References listed on IDEAS

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    10. Richard Tol, 2012. "Leviathan carbon taxes in the short run," Climatic Change, Springer, vol. 114(2), pages 409-415, September.
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    Cited by:

    1. Richard S.J. Tol, 2018. "Energy and Climate," Working Paper Series 1618, Department of Economics, University of Sussex Business School.
    2. Richard S. J. Tol, 2021. "Europe’s Climate Target for 2050: An Assessment," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 56(6), pages 330-335, November.
    3. Huntington, Hillard G., 2021. "Model evaluation for policy insights: Reflections on the forum process," Energy Policy, Elsevier, vol. 156(C).
    4. Taran Fæhn, Cathrine Hagem, Lars Lindholt, Ståle Mæland, and Knut Einar Rosendahl, 2017. "Climate policies in a fossil fuel producing country demand versus supply side policies," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).

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    More about this item

    Keywords

    Climate policy; European Union; carbon price; forecast skill; uncertainty;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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