Abatement Cost Uncertainty and Policy Instrument Selection Under a Stringent Climate Policy - A Dynamic Analysis

20 Pages Posted: 1 Apr 2008 Last revised: 12 May 2013

See all articles by Valentina Bosetti

Valentina Bosetti

Bocconi University; CMCC - Euro Mediterranean Centre for Climate Change

Alexander Golub

Environmental Defense

Anil Markandya

Basque Centre for Climate Change (BC3); University of Bath

Emanuele Massetti

Georgia Institute of Technology; CESifo (Center for Economic Studies and Ifo Institute); CMCC - Euro Mediterranean Centre for Climate Change

Massimo Tavoni

Fondazione Eni Enrico Mattei (FEEM); Princeton University - Princeton Environmental Institute

Date Written: February 1, 2008

Abstract

This paper investigates the relative economic and environmental outcomes of price versus quantity mechanisms to control GHG emissions when abatement costs are uncertain. In particular, we evaluate the impacts on policy costs, CO2 emissions and energy R&D for a stringent mitigation target of 550 ppmv CO2 equivalent (i.e. 450 for CO2 only) concentrations. The analysis is performed in an optimal growth framework via Monte Carlo simulations of the integrated assessment model WITCH (World Induced Technical Change Hybrid). Results indicate that the price instrument stochastically dominates the quantity instrument when a stringent stabilization policy is in place.

Keywords: Abatement Costs, Climate Policy

JEL Classification: H2, C6, Q5

Suggested Citation

Bosetti, Valentina and Golub, Alexander and Markandya, Anil and Massetti, Emanuele and Tavoni, Massimo, Abatement Cost Uncertainty and Policy Instrument Selection Under a Stringent Climate Policy - A Dynamic Analysis (February 1, 2008). FEEM Working Paper No. 15.2008; CMCC Research Paper No. 36. Available at SSRN: https://ssrn.com/abstract=1105316 or http://dx.doi.org/10.2139/ssrn.1105316

Valentina Bosetti (Contact Author)

Bocconi University

Via Gobbi 5
Milan, 20136
Italy

CMCC - Euro Mediterranean Centre for Climate Change

via Augusto Imperatore, 16
Lecce, I-73100
Italy

Alexander Golub

Environmental Defense ( email )

New York, Nat'l Headquarters
257 Park Avenue South
New York, NY 10010
United States
202-387-3500 (Phone)

Anil Markandya

Basque Centre for Climate Change (BC3)

Gran Vía 35-2
Bilbao, Vizcaya 48009
Spain

University of Bath ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

Emanuele Massetti

Georgia Institute of Technology ( email )

685 Cherry St.
Atlanta, GA 30332-0345
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

CMCC - Euro Mediterranean Centre for Climate Change

via Augusto Imperatore, 16
Lecce, I-73100
Italy

Massimo Tavoni

Fondazione Eni Enrico Mattei (FEEM) ( email )

Corso Magenta 63
20123 Milan
Italy

Princeton University - Princeton Environmental Institute

22 Chambers Street
Princeton, NJ 08544-0708
United States

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