Uncertain Outcomes and Climate Change Policy

By Robert S. Pindyck. 2012

178 citations recorded by the source corpus.

I incorporate distributions for temperature change and its economic impact in an analysis of climate change policy. As a measure of willingness to pay (WTP), I estimate the fraction of consumption w⁎(τ) that society would be willing to sacrifice to ensure that any increase in temperature at a future point is limited to τ. Using information on distributions for temperature change and economic impact from recent studies assembled by the IPCC and others, I fit displaced gamma distributions for these variables. These fitted distributions, which roughly reflect the “state of knowledge” regarding warming and its impact, generally yield values of w⁎(τ) below 2%, even for small values of τ, consistent with moderate abatement policies. I also calculate WTP for shifts in the mean and standard deviation of the temperature distribution, and show how WTP, and thus the demand for abatement, are driven more by outcome uncertainty than expected outcomes.

Subfields: Economics and Econometrics, Renewable Energy, Sustainability and the Environment

View Paper: https://www.semanticscholar.org/paper/f4d88c60352f29dd302416de093005fd1e662a0b

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Citations in the corpus

Temperature impacts on economic growth warrant stringent mitigation policy (2015, methodology): “For runs with a positive adaptation rate, ETt replaces Tt in the calculation of damages (equation (1)).”
Climate Impacts on Economic Growth as Drivers of Uncertainty in the Social Cost of Carbon (2014, unknown): “(9) This damage function is almost the same as that used by Pindyck (2011, 2012).”
The Use and Misuse of Models for Climate Policy (2015, unknown): “10I show this formally in Pindyck (2011, 2012).”
The social cost of carbon revisited (2016, unknown): “…what is the probability that under “business as usual” (BAU), i.e., no significant global emissions abatement beyond that mandated by current policy, we will experience a climate-induced reduction in 6I have shown this in Pindyck (2011b, 2012), and will further demonstrate it in the next section.”
What Do We Learn from the Weather? The New Climate-Economy Literature (2014, unknown): “The level of output or the growth rate of output A key modeling choice for the damage function is whether climate affects the level of output or the growth path of output (Pindyck 2011; Dell, Jones, and Olken 2012; Pindyck 2012).”
Developing a Social Cost of Carbon for US Regulatory Analysis: A Methodology and Interpretation (2013, background): “However, others conclude that the conditions under which Weitzman’s results hold are limited (Newbold and Daigneault 2009; Nordhaus 2009; Pindyck 2012).”
Faraway, So Close: Coupled Climate and Economic Dynamics in an Agent-based Integrated Assessment Model (2018, unknown): “The Beta distribution is exible enough to explore a wide range of scenarios and to genuinely account for fat-tailed climate risks (Ackerman et al., 2010; Weitzman, 2011; Pindyck, 2012).”