Adaptation, mitigation and risk-taking in climate policy
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The future consequences of climate change are highly uncertain and estimates of economic damages differ widely. Governments try to cope with these risks by investing in mitigation and adaptation measures. In contrast to most of the existing literature, we explicitly model the decision of risk averse governments on mitigation and adaptation policies. We also consider the interaction of the two strategies in presence of uncertainty. Mitigation efforts of a single country trigger crowding out as other countries will reduce their mitigation efforts. This may even lead to lower mitigation on the global scale. In contrast, a unilateral commitment to large adaptation efforts benefits the single country and can reduce the global risk from climate change at the expense of other countries.
KeywordsClimate change Adaptation Mitigation Risk-taking
JEL classificationH41 H87 Q54 Q58
We thank Kjell Erik Lommerud, Alf Erling Risa, Sigve Tjøtta, Gaute Torsvik and Kjell Vaage an two anonymous reviewers for very helpful comments and suggestions. This research is funded by the German Federal Ministry of Education and Research (BMBF) within the funding priority ’Economics of Climate Change’ (Grant no. 01LA1106A).
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