Climate policies under climate model uncertainty: Max-min and min-max regret

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Temperature responses and optimal climate policies depend crucially on the choice of a particular climate model. To illustrate, the temperature responses to given emission reduction paths implied by the climate modules of the well-known integrated assessments models DICE, FUND and PAGE are described and compared. A dummy temperature module based on the climate denialists' view is added. Using a simple welfare-maximising growth model of the global economy, the sensitivity of the optimal carbon price, renewable energy subsidy and energy transition to each of these climate models is discussed. The paper then derives max-min, max-max and min-max regret policies to deal with this particular form of climate (model) uncertainty and with climate scepticism. The max-min or min-max regret climate policies rely on a non-sceptic view of global warming and lead to a substantial and moderate amount of caution, respectively. The max-max leads to no climate policies in line with the view of climate sceptics. Terms of use: Documents inJEL-Codes: H210, Q510, Q540.

Addressing partial identification in climate modeling and policy analysis

“…† MMR has been applied in several policy areas, including criminal justice (6) and public health (7). It has been used in computational modeling of energy and climate policy in a number of studies (8)(9)(10)(11)(12). [Cai (13) reviews this research.]…”

Prices and Taxes in a Ramsey Climate Policy Model under Heterogeneous Beliefs and Ambiguity

“…As indicated earlier, the study of ambiguity in the context of climate policy is not without precedent, but discussions have generally been limited to cases when only the planner has doubts about the approximating climate-economic model. Such doubts include concerns about potential mis-specification of alternative models and ambiguity over how much weight to assign to each of these models, while agents themselves are usually assumed to have rational beliefs (see Millner et al (2012), Brock and Durlauf (2015), Cai et al (2013), Cai and Lontzek (2019), Anderson et al (2013), Berger et al (2016), Li et al (2016), Lemoine and Traeger (2016), Rezai and van der Ploeg (2017), and Barnett et al (2020)). Hennlock's (2009) is no exception in that, although he attributes deep uncertainty to the consumer, the government, being a direct extension of the consumer, remains the consumer's sole agent, so that, in effect, it is the planner who is modeled as having doubts about the model.…”

Climate Policies: Challenges, Obstacles and Tools

“…But climate sceptics might be persuaded to be in favour of curbing global warming, since the welfare cost of conducting climate policy when the climate deniers are right are modest (e.g., relatively small Harberger triangles as the revenue from carbon pricing is recycled) and the welfare cost of not conducting climate policy when the climate scientists are right are potentially very large (e.g., a third of GDP with unfettered global warming leading to 4 or 5 degrees Celsius). Rezai and van der Ploeg (2017b) show that maximising welfare under the worst possible outcome or minimising the regret of conducting the wrong policy both lead to an ambitious climate policy. If a model uncertainty approach with ambiguity aversion is used, policymakers still pursue an aggressive carbon pricing policy even if a probability that climate deniers are right of 10 or 20 per cent is used.…”