Regional Climate Policy under Deep Uncertainty

We study climate change policies by using the novel pattern scaling approach of regional transient climate response to develop an economyclimate model under conditions of deep uncertainty associated with: (i) temperature dynamics, (ii) regional climate change damages, and (iii) policy in the form of carbon taxes. We analyze both cooperative and noncooperative outcomes in a regional model. Under deep uncertainty, robust control policies are more conservative regarding emissions, the higher the aversion to ambiguity, while damage uncertainty seems to produce more conservative behavior than climate dynamics uncertainty. Cooperative policies tend to be more conservative than noncooperative policies for similar concerns about uncertainty but, as concerns about uncertainty increase, policies tend to move closer to each other. Asymmetries in concerns about uncertainty tend to produce large deviations in regional emissions policy at the noncooperative solution. If aversion to ambiguity is sufficiently high, optimal regulation aiming to attain a cooperative steady state or a steady state that satisfies conditions for a Nash equilibrium might not be possible. The result is associated with the existence of regional hot spots and temperature spillovers across regions, a situation which emerges in the real world. In such cases, deep uncertainty about the impacts of climate change makes robust regulation infeasible.