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Environmental and Resource Economics

, Volume 67, Issue 1, pp 93–125 | Cite as

Global Warming and a Potential Tipping Point in the Atlantic Thermohaline Circulation: The Role of Risk Aversion

  • Mariia BelaiaEmail author
  • Michael Funke
  • Nicole Glanemann
Article

Abstract

The risk of catastrophes is one of the greatest threats of climate change. Yet, conventional assumptions shared by many integrated assessment models such as DICE lead to the counterintuitive result that higher concern about climate change risks does not lead to stronger near-term abatement efforts. This paper examines whether this result still holds in a refined DICE model that employs the Epstein–Zin utility specification and that is fully coupled with a dynamic tipping point model describing the evolution of the Atlantic thermohaline circulation (THC). Risk is captured by the possibility of a future collapse of the circulation and it is nourished by fat-tailed uncertainty about climate sensitivity. This uncertainty is assumed to resolve in the middle of the second half of this century and the near-term abatement efforts, which are undertaken before that point of time, can be adjusted afterwards. These modelling choices allow posing the question of whether aversion to this specific tipping point risk has a significant effect on near-term policy efforts. The simulations, however, provide evidence that it has little effect. For the more likely climate sensitivity values, a collapse of the circulation would occur in the more distant future. In this case, acting after learning can prevent the catastrophe, implying the remarkable insensitivity of the near-term policy to risk aversion. For the rather unlikely and high climate sensitivity values, the expected damage costs are not great enough to justify taking very costly measures to safeguard the THC. Our simulations also provide some indication that risk aversion might have some effect on near-term policy, if inertia limiting the speed of decarbonisation is accounted for. As it is highly uncertain how restrictive this kind of inertia will be, future research might investigate the effects of risk aversion if additional uncertainty about inertia is considered.

Keywords

Integrated assessment modeling Risk aversion Epstein–Zin utility DICE Thermohaline circulation Climate sensitivity Uncertainty 

Notes

Acknowledgments

We would like to thank the anonymous referee for constructive comments that helped improve the contents of this paper. We are also indebted to the German Science Foundation for its financial support through its funding of the Cluster of Excellence ‘Integrated Climate System Analysis and Prediction’ (CliSAP) of the University of Hamburg. After the period in which the research was conducted, Nicole Glanemann changed her affiliation from the University of Hamburg to the Potsdam Institute for Climate Impact Research and WHU—Otto Beisheim School of Management in Vallendar. We would like to express gratitude to Frank Ackerman, Ramon Bueno, and Elisabeth A. Stanton for sharing the GAMS code of their EZ-DICE model. We would also like to acknowledge Kirsten Zickfeld for providing background information on the four-box THC model and for offering the MATLAB code. Furthermore, we are grateful to Chao Li for his expert advice on Atlantic thermohaline circulation. Of course, any remaining mistakes are solely the responsibility of the authors.

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Copyright information

© Springer Science+Business Media Dordrecht 2015

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of HamburgHamburgGermany
  2. 2.Potsdam Institute for Climate Impact ResearchPotsdamGermany
  3. 3.The International Max Planck Research School on Earth System ModellingHamburgGermany
  4. 4.CESifoMunichGermany
  5. 5.WHU - Otto Beisheim School of ManagementVallendarGermany

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