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Decision making under uncertainty and inertia constraints: sectoral implications of the when flexibility

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  • Franck Lecocq

    (CIRED - centre international de recherche sur l'environnement et le développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)

  • Jean Charles Hourcade

    (CIRED - centre international de recherche sur l'environnement et le développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)

  • Minh Ha-Duong

    (CIRED - centre international de recherche sur l'environnement et le développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)

Abstract

Current debates on climate mitigation emphasize the role of the inertia of the economic system. Our aim in this paper is to study more in depth how sectorally differentiated inertia impacts on optimal C02-emission abatement policies. Using the STARTS model, we show that optimal abatement levels and costs differ sensibly among sectors. Differential inertia is the critical determinant of this trade-off, especially in case of a 20-year delay in the action, or in an underestimation of the growth of the transportation sector. In particular, the burden of any additional abatement effort falls on the most flexible sector, i.e. the industry.Debates on mitigation emphasize the role of inertia of the economic system. This paper aims at studying more in depth how sectorally differentiated inertia should influence optimal CO2 emission abatement policies. Using a two-sector version of STARTS, we show that under perfect expectations, optimal abatement profiles and associated costs differ sensibly between a flexible and a rigid sector (transportation). In a second step, we scrutinize the role of the uncertainty by testing the case of a 20-year delay of action and an underestimated growth of the transportation sector. We do this for three concentration ceilings and we point out the magnitude of the burden which falls on the flexible sector. We derive some policy implications for the ranking of public policies and for incentive instruments to be set up at international level.

Suggested Citation

  • Franck Lecocq & Jean Charles Hourcade & Minh Ha-Duong, 1998. "Decision making under uncertainty and inertia constraints: sectoral implications of the when flexibility," Post-Print halshs-00002458, HAL.
    • Handle: RePEc:hal:journl:halshs-00002458
    DOI: 10.1016/S0140-9883(98)00012-7
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00002458
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