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Choosing the optimal climate change policy in the presence of catastrophic risk

Listed author(s):
  • Bosello, Francesco
  • De Cian, Enrica
  • Ferranna, Licia

This paper contributes to the normative literature on mitigation and adaptation by analyzing their optimal policy balance in the context of climate catastrophic risk. The investigation enriches an integrated assessment model introducing the endogenous link between the probability of experiencing a climate-change related catastrophic event, the temperature increase caused by GHG emissions, and ultimately abatement choices. Results indicate that the presence of catastrophic risk induces substantial mitigation effort even in a non-cooperative setting, where usually global cooperation on climate, and accordingly substantive emission reductions, do not succeed. The policy balance is realigned from adaptation toward more mitigation, and the responsiveness of mitigation to changes in adaptation decreases. Compared to a world without climate catastrophes, risk reduces the substitutability between adaptation and mitigation because only mitigation can influence the catastrophic probability. In this setting, our analysis also shows that adaptation funds and strategic unilateral commitments to adaptation are not the most efficient ways of buying emission reduction in less developed countries, though they could create some welfare gains and induce abatement in the recipient countries.

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File URL: https://www.econstor.eu/bitstream/10419/88104/1/772224994.pdf
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Paper provided by European Investment Bank (EIB) in its series EIB Working Papers with number 2012/03.

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Date of creation: 2012
Handle: RePEc:zbw:eibwps:201203
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  1. Viscusi, W Kip & Aldy, Joseph E, 2003. "The Value of a Statistical Life: A Critical Review of Market Estimates throughout the World," Journal of Risk and Uncertainty, Springer, vol. 27(1), pages 5-76, August.
  2. repec:reg:rpubli:282 is not listed on IDEAS
  3. Heike Auerswald & Kai A. Konrad & Marcel Thum, 2011. "Adaptation, Mitigation and Risk-Taking in Climate Policy," CESifo Working Paper Series 3320, CESifo Group Munich.
  4. Kenneth J. Arrow & Anthony C. Fisher, 1974. "Environmental Preservation, Uncertainty, and Irreversibility," The Quarterly Journal of Economics, Oxford University Press, vol. 88(2), pages 312-319.
  5. Shardul Agrawala & Francesco Bosello & Carlo Carraro & Kelly De Bruin & Enrica De Cian & Rob Dellink & Elisa Lanzi, 2011. "Plan Or React? Analysis Of Adaptation Costs And Benefits Using Integrated Assessment Models," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 2(03), pages 175-208.
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