Modeling the Cost of Climate Policy: Distinguishing Between Alternative Cost Definitions and Long-Run Cost Dynamics

Abstract

Interest groups and experts debate the cost of greenhouse gas (GHG) reduction, andpolicy-makers do not know whom to believe. IVte confusion stems from differing definitions of costs and divergent assumptions about key uncertainties, especially the role of policy in influencing the long-run evolution of technologies and consumer preferences. Analysis could be more helpful to policy-makers by combining technological explicitness with behavioral realism in hybrid models. With such a model, we demonstrate how GHG reduction cost estimates vary depending on whether the analyst focuses just on the jinancial costs of technologies or combines this with other relevant components of consumer and business preferences, such as option value and consumers' surplus. We also show how this type of model can allow policy-makers to explore the uncertain relationship between policies and the evolution of technologies and preferences, which are critical factors in the long-run cost dynamics of GHG emission reduction. We explore these generic methodological issues with a case study of GHG reduction costs in Canada.

Combining stated and revealed choice research to simulate the neighbor effect: The case of hybrid-electric vehicles

“…CIMS is known as a ''hybrid'' model (Bohringer, 1998;Jaccard et al, 2003) because it combines the technological detail of ''bottom-up'' models with the behavioral realism and macro-economic equilibrium effects of ''top-down'' models (Jaffe and Stavins, 1994;Grubb et al, 2002). CIMS is technologically explicit in that it details thousands of technologies that compete for market share in a given node.…”

“…One objective of this study is to estimate preference dynamics associated with the adoption of HEVs to improve the behavioral realism of CIMS, an energy-economy model which has been frequently applied to real-world policy research (e.g., Jaccard et al, 2003;Horne et al, 2005;Bataille et al, 2006). In addition to financial attributes, such as purchase price and fuel costs, CIMS represents the intangible costs associated with a new technology, such as consumer perceptions of quality, reliability, availability, social desirability or popularity.…”

Economics of geological CO2 storage and leakage

“…Nakićenović et al (2001) and used in a series of engineering energy systems models (such as in Smekens and van der Zwaan, 2006). In this sense, DEMETER is fundamentally hybrid and, because of its endogenous cost definition, fit for analysing long-term energy technology cost dynamics and deriving practical insight for climate policy making (Jaccard et al, 2003).…”

Identifying Effective Management Instruments and Human Behavioural Changes to Manage Energy Use and Abate Emissions at Firm Level

“…CAC regulations may be one of these methods. CAC regulations can be defined as a way by which courses of action needed are determined and punishments associated with noncompliance are administered (Jaccard, Nyboer, & Sadownik, 2002). It is essential to note that costs of different types of policies (CAC or market-based) may also vary (Lehmann, 2011).…”