Climate Policy Design Under Uncertainty

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.

Keywords: carbon, climate, policy, intensity, global warming, uncertainty, price, quantity

JEL Classification: D81, Q54, Q58