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Climate Policy Design Under Uncertainty

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  • Pizer, William

    (Resources for the Future)

Abstract

The uncertainty surrounding both costs and benefits associated with global climate change mitigation creates enormous hurdles for scientists, stakeholders, and decisionmakers. A key issue is how policy choices balance uncertainty about costs and benefits. This balance arises in terms of the time path of mitigation efforts as well as whether those efforts, by design, focus on effort or outcome. This paper considers two choices—price versus quantity controls and absolute versus relative/intensity emissions limits—demonstrating that price controls and intensity emissions limits favor certainty about cost over climate benefits and future emissions reductions. The paper then argues that in the near term, this favoritism is desired.

Suggested Citation

  • Pizer, William, 2005. "Climate Policy Design Under Uncertainty," RFF Working Paper Series dp-05-44, Resources for the Future.
  • Handle: RePEc:rff:dpaper:dp-05-44
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    File URL: http://www.rff.org/RFF/documents/RFF-DP-05-44.pdf
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    References listed on IDEAS

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    1. Richard S. J. Tol, 1999. "The Marginal Costs of Greenhouse Gas Emissions," The Energy Journal, , vol. 20(1), pages 61-81, January.
    2. Richard Newell & William Pizer & Jiangfeng Zhang, 2005. "Managing Permit Markets to Stabilize Prices," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 31(2), pages 133-157, June.
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    7. Curtis Carlson & Dallas Burtraw & Maureen Cropper & Karen L. Palmer, 2000. "Sulfur Dioxide Control by Electric Utilities: What Are the Gains from Trade?," Journal of Political Economy, University of Chicago Press, vol. 108(6), pages 1292-1326, December.
    8. Ian W.H. Parry, 2002. "Pollution Taxes and Revenue Reycling," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 15, pages 235-248, Edward Elgar Publishing.
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    10. Giandomenico Majone, 2002. "The Precautionary Principle and its Policy Implications," Journal of Common Market Studies, Wiley Blackwell, vol. 40(1), pages 89-109, March.
    11. Pizer, William A., 2002. "Combining price and quantity controls to mitigate global climate change," Journal of Public Economics, Elsevier, vol. 85(3), pages 409-434, September.
    12. Kopp, Raymond J., 2004. "Near-Term Greenhouse Gas Emissions Targets," Discussion Papers 10818, Resources for the Future.
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    Cited by:

    1. Simon Dietz & Samuel Fankhauser, 2010. "Environmental prices, uncertainty, and learning," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 26(2), pages 270-284, Summer.
    2. Webster, Mort & Sue Wing, Ian & Jakobovits, Lisa, 2010. "Second-best instruments for near-term climate policy: Intensity targets vs. the safety valve," Journal of Environmental Economics and Management, Elsevier, vol. 59(3), pages 250-259, May.
    3. World Bank, 2009. "Building Response Strategies to Climate Change in Agricultural Systems in Latin America," World Bank Publications - Reports 12473, The World Bank Group.
    4. Robert N. Stavins, 2008. "Addressing climate change with a comprehensive US cap-and-trade system," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 24(2), pages 298-321, Summer.
    5. Stranlund, John K. & Murphy, James J. & Spraggon, John M., 2014. "Price controls and banking in emissions trading: An experimental evaluation," Journal of Environmental Economics and Management, Elsevier, vol. 68(1), pages 71-86.
    6. Robert S. Pindyck, 2006. "Uncertainty In Environmental Economics," NBER Working Papers 12752, National Bureau of Economic Research, Inc.
    7. Gilbert E. Metcalf, 2009. "Cost Containment in Climate Change Policy: Alternative Approaches to Mitigating Price Volatility," NBER Working Papers 15125, National Bureau of Economic Research, Inc.
    8. Szolgayova, Jana & Fuss, Sabine & Obersteiner, Michael, 2008. "Assessing the effects of CO2 price caps on electricity investments--A real options analysis," Energy Policy, Elsevier, vol. 36(10), pages 3974-3981, October.
    9. World Bank, 2009. "Vulnerability to Climate Change in Agricultural Systems in Latin America and the Caribbean," World Bank Publications - Reports 24103, The World Bank Group.

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    More about this item

    Keywords

    carbon; climate; policy; intensity; global warming; uncertainty; price; quantity;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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