The analysis of climate change is confronted with large uncertainties that need to be taken into account to arrive at meaningful policy recommendations. The main contribution of economics to this interdisciplinary task is to provide formal frameworks and techniques for analyzing climate policy in the context of uncertainty. This paper will give an overview of existing approaches and findings to provide a broad picture of what economics can contribute to the debate.
Similar content being viewed by others
References
A.H. Samstad and L.A. Greening, Economic models for climate policy analysis, Environ. Model. Assess. 3 (1998) 3–18.
G. Heal and B. Kriström, Uncertainty and climate change, Environ. Resour. Econ. 22 (2002) 3–39.
D.L. Kelly and C.D. Kolstad, Integrated assessment models for climate change control, in: International Yearbook of Environmental and Resource Economics 1999/2000: A Survey of Current Issues, eds. H. Folmer and T. Tietenberg (Edward Elgar, Cheltham, UK, 1999) pp. 171–197.
A. Kann and J.P. Weyant, Approaches for performing uncertainty analysis in large-scale energy/economic policy models, Environ. Model. Assess. 5 (2000) 29–44.
R. Zapert, P.S. Gaertner and J.A. Filar, Uncertainty propagation within an integrated model of climate change, Energy Econ. 20 (1998) 571–598.
IPCC, Climate Change 2001, Impacts, Adaptation and Vulnerability (Cambridge University Press, New York, USA, 2001).
J. Gjerde, S. Grepperud and S. Kverndokk, Optimal climate policy in the possibility of a catastrophe, Resour. Energy Econ. 21 (1999) 289–317.
P. Molander, Optimal Greenhouse Gas Abatement Under Uncertainty (Research Papers in Economics, University of Stockholm, Stockholm, Sweden, 1994).
R. Sausen, Kette von Unsicherheiten, in: Protokoll des 2. Nationales IPCC-Arbeitsgespräch: Klimaänderungen: Bewertung von Unsicherheiten als Grundlage für rationales Handeln (Köln-Porz, Germany, 23 September 2003).
A. Baranzini, A.M. Chesney and J. Morisset, The impact of possible climate catastrophes on global warming policies, Energy Policy 31 (2003) 691–701.
C. Carraro and J.C. Hourcade, Climate modelling and policy strategies. The role of technical change and uncertainty, Energy Econ. 20 (1998) 463–471.
W. Nordhaus, Managing the Global Commons (MIT Press, Cambridge, 1994).
A.C. Fisher and U. Narain, Global warming, endogenous risk, and irreversibility, Environ. Resour. Econ. 25 (2003) 395–416.
C.D. Kolstad, Learning and stock effects in environmental regulation: the case of greenhouse gas emissions. J. Environ. Econ. Manage. 31 (1996) 1–18.
K. Arrow and A. Fisher, Environmental preservation, uncertainty and irreversibility, Q. J. Econ. 88 (1974) 312–319.
C. Henry, Investment decisions under uncertainty: the irreversibility effect, Am. Econ. Rev. 64 (1974) 1006–1012.
W. Nordhaus and D. Popp, What is the value of scientific knowledge? An application to global warming using the PRICE model, Energy J. 18 (1997) 1–46.
A.S. Manne and R.G. Richels, Buying Greenhouse Insurance: The Economic Costs of Carbon Dioxide Emission Limits (MIT Press, Cambridge, MA, USA, 1992).
S.C. Peck and T.J. Teisberg, Global warming uncertainties and the value of information: an analysis using CETA, Resour. Energy Econ. 15 (1993) 71–97.
S.C. Peck and Y.S. Wan, Analytic solutions of simple optimal greenhouse gas emission models, in: Economics of Atmospheric Pollution, eds. E.C. van Ierland and K. Gorka (Springer Verlag, Berlin Heidelberg New York, 1996) pp. 113–121.
M. Ha-Duong, Quasi-option value and climate policy choices, Energy Econ. 20 (1998) 599–620.
A. Ulph and D. Ulph, Who gains from learning about global warming? in: Economics of Atmospheric Pollution, eds. E.C. van Ierland and K. Gorka (Springer Verlag, Berlin Heidelberg New York, 1996) pp. 31–67.
E. Baker, Uncertainty and Learning in a Strategic Environment: Global Climate Change (Paper, University of Massachusetts, Amherst, USA, 2003).
F.L. Toth, Decision making frameworks, in: IPCC. Third Assessment Report: Climatic Change 2001: Mitigation (Cambridge University Press, New York, USA, 2001) Chapter 10.
IPCC, Climate Change 1995. Economic and Social Dimension of Climate Change (Cambridge University Press, New York, USA, 1996).
R.I. Willows and R.K. Connell, eds., Climate Adaptation: Risk Uncertainty and Decision-Making, Technical Report (UKCIP, Oxford, UK, 2003).
A. Kanudia and R. Loulou, Robust responses to climate change via stochastic MARKAL: the case of Québec, Eur. J. Oper. Res. 106 (1998) 15–30.
R. Loulou and A. Kanudia, Minimax regret strategies for greenhouse gas abatement: methodology and application, Oper. Res. Lett. 25 (1999) 219–230.
A. Lange, Climate change and the irreversibility effect – combining expected utility and maximin, Environ. Resour. Econ. 25 (2003) 417–434.
H. Dowlatabadi and M.G. Morgan, A model framework for integrated assessment of the climate problem, Energy Policy 21 (1993) 209–211.
H. Dowlatabadi, Sensitivity to climate change mitigation estimate to assumptions about technical change, Energy Econ. 20 (1998) 473–493.
D. Cohan, R. Stafford, R. Scheraga and S. Herrod, The global climate policy framework, in: Proceedings of the 1994 A & WMA Global Climate Change Conference: Phoenix April 5–8 (Air & Waste Management Association, Pittsburgh, USA 1994).
M.L. Weitzman, Prices vs. quantities, Rev. Econ. Stud. 41 (1974) 477–491.
W.A. Pizer, The optimal choice of climate change policy in the presence of uncertainty, Resour. Energy Econ. 21 (1999) 255–287.
M. Hoel and L. Karp, Taxes and quotas for a stock pollutant with multiplicative uncertainty, J. Public Econ. 82 (2001) 91–114.
F. Lecocq and R. Crassous, International Climate Regime Beyond 2012. Are Quota Allocation Rules Robust to Uncertainty? (Policy Research Working Paper, World Bank, Washington, DC, USA, 2003).
A. Haurie and L. Viguier, A stochastic game of carbon emissions trading, Environ. Model. Assess. 8 (2003) 239–248.
J. Hawellek, Uncertainties of the Cost of the Kyoto Protocol (Working Paper, University of Oldenburg, Oldenburg, Germany, 2003).
M. Manning and M. Petit, A concept paper for the AR4 cross cutting theme: uncertainty and risk, http://www.ipcc.ch/activity/cct1.pdf (accessed may 28, 2004), 2003.
W. Nordhaus and G. Yohe, Future carbon dioxide emissions from fossil fuels, in: Changing Climate, eds. J.H. Ausubel and W. Nordhaus (National Academy Press, Washington, DC, USA, 1983), pp. 87–153.
J.A. Edmonds, J.M. Reilly, R.H. Gardner and A. Brenkert, Uncertainty in Future Global Energy Use and Fossil Fuel CO 2 Emission 1975 to 2075, Report TR036, DO3/NBB-0081 Dist. Category UC-11 (National Technical Information Service, U.S. Department of Commerce, Washington, DC, USA, 1986).
A. Manne and R. Richels, The greenhouse debate – economic efficiency, burden sharing and hedging strategies, Energy J. 16 (1995) 1–37.
R. Pindyck, Irreversibility and the timing of environmental policy, Resour. Energy Econ. 22 (2000) 233–259.
E. Bosello and M. Moretto, Dynamic Uncertainty and Global Warming Risk, Nota di Lavoro 80.99 (FEEM, Venice, Italy, 1999).
E. Castelnuovo, M. Moretto and S. Vergalli, Global warming, uncertainty and endogenous technical change, Environ. Model. Assess. 8 (2003) 291–301.
R. Tol, Safe policies in an uncertain climate: an application of FUND, Glob. Environ. Change 9 (1999) 221–232.
G. Heal, Interactions between economy and climate. A framework for policy design under uncertainty, Appl. Micro-Econ. 3 (1984) 151–168.
A. Ulph and D. Ulph, Global warming, irreversibility and learning, Econ. J. 107 (1997) 636–650.
J. Zhao, Irreversible abatement under cost uncertainties: tradable emission permit and emission charges, J. Public Econ. 87 (2003) 2765–2789.
J.M. Reilly, J.A. Edmonds, R.H. Gardner and L.A. Brenker, Uncertainty analysis of the IEA/ORAU CO2 emissions model, Energy J. 8 (1987) 1–29.
C. Hope, J. Anderson and P. Wenman, Policy analysis of the greenhouse effect. An application of the PAGE model, Energy Policy 21 (1993) 327–338.
E. Plambeck and C. Hope, PAGE95. An updated valuation of the impacts of global warming, Energy Policy 14 (1996) 783–793.
M.J. Scott, R.D. Sands, J. Edmonds, A.M. Liebetrau and D.W. Engel, Uncertainty in integrated assessment models: modelling with MiniCAM 1.0, Energy Policy 27 (1999) 855–879.
G. Yohe and R. Wallace, Near term mitigation policy for global change under uncertainty: minimizing the expected costs of meeting unknown concentration thresholds, Environ. Model. Assess. 1 (1996) 47–57.
C. Gollier, B. Jullien and N. Treich, Scientific progress and irreversibility: an economic interpretation of the ‘Precautionary Principle,’ J. Public Econ. 75 (2000) 229–253.
M. Grubb, Technologies, energy systems and the timing of CO2 emissions abatement, Energy Policy 25 (1997) 159–172.
M. Webster, The curious role of “learning” in climate policy: should we wait for more data?, Energy J. 23 (2002) 97–119.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Peterson, S. Uncertainty and economic analysis of climate change: A survey of approaches and findings. Environ Model Assess 11, 1–17 (2006). https://doi.org/10.1007/s10666-005-9014-6
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10666-005-9014-6