An abrupt stochastic damage function to analyse climate policy benefits

This paper studies uncertainty about the non-linearity of climate change impact. The DIAM 2.3 model is used to compute the sensitivity of optimal CO2 emissions paths with respect to damage function parameters. This builds upon results of the EMF-14 uncertainty subgroup study by explicitly allowing for the possibility of threshold effects and hockey stick damage functions. It also extends to the cost-benefits framework previous studies about inertia of energy systems. Results show that the existence of a threshold in the damage function is critical to precautionary action. Optimal path are much less sensitive to uncertainty on the scale of the damages than on the threshold values.

[1]  M. Ha-Duong.  Comment tenir compte de l'irreversabilite dans l'evaluation integree du changement climatique ? , 1998 .

[2]  S. Schneider,et al.  Climate Change 2001: Synthesis Report: A contribution of Working Groups I, II, and III to the Third Assessment Report of the Intergovernmental Panel on Climate Change , 2001 .

[3]  Michael Dalton.  The Welfare Bias from Omitting Climatic Variability in Economic Studies of Global Warming , 1997 .

[4]  William D. Nordhaus,et al.  Managing The Global Commons , 1994 .

[5]  M. Grubb,et al.  Influence of socioeconomic inertia and uncertainty on optimal CO2-emission abatement , 1997, Nature.

[6]  J. Darmstadter,et al.  Assessing surprises and nonlinearities in greenhouse warming , 1994 .

[7]  Joanna Isobel House,et al.  Climate change 2001 : synthesis report , 2001 .

[8]  Klaus Keller,et al.  Uncertain climate thresholds and optimal economic growth , 2004 .

[9]  W. Broecker,et al.  Thermohaline circulation, the achilles heel of our climate system: will man-made CO2 upset the current balance? , 1997, Science.

[10]  Gary W. Yohe,et al.  Near term mitigation policy for global change under uncertainty: Minimizing the expected cost of meeting unknown concentration thresholds , 1996 .

[11]  A. Fisher,et al.  IRREVERSIBILITY AND CATASTROPHIC GLOBAL WARMING , 1998 .

[12]  V. Bosetti,et al.  Carbon Capture and Sequestration: How Much Does this Uncertain Option Affect Near-Term Policy Choices? , 2005 .

[13]  Michael Obersteiner,et al.  Learning and climate change , 2006 .

[14]  S. Kverndokk,et al.  Optimal Climate Policy Under the Possibility of a Catastrophe , 1998 .

[15]  Martin Wagner,et al.  Exploring the Environmental Kuznets Hypothesis. Theoretical and Econometric Problems , 2007 .