Ambiguity Reduction by Objective Model Selection, with an Application to the Costs of the EU 2030 Climate Targets

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

I estimate the cost of meeting the EU 2030 targets for greenhouse gas emission reduction, using statistical emulators of ten alternative models. Assuming a first-best policy implementation, I find that total and marginal costs are modest. The statistical emulators allow me to compute the risk premiums, which are small, because the EU is rich and the policy impact is small. The ensemble of ten models allows me to compute the ambiguity premium, which is small for the same reason. I construct a counterfactual estimate of recent emissions without the climate policy and use that to test the predictive skill of the ten models. The models that show the lowest cost of emission reduction also have the lowest skill for Europe in recent times.
Original languageEnglish
Pages (from-to)6886-6896
JournalEnergies
Volume7
Issue number11
DOIs
Publication statusPublished - 2014

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Model Selection
Climate
Target
Costs
Risk Premium
Greenhouse Gases
Gas emissions
Greenhouse gases
Model
Estimate
Lowest
Ensemble
Ambiguity
Alternatives
Policy
Skills

Bibliographical note

PT: J; NR: 17; TC: 0; J9: ENERGIES; PG: 11; GA: AU4EW; UT: WOS:000345563200004

Cite this

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abstract = "I estimate the cost of meeting the EU 2030 targets for greenhouse gas emission reduction, using statistical emulators of ten alternative models. Assuming a first-best policy implementation, I find that total and marginal costs are modest. The statistical emulators allow me to compute the risk premiums, which are small, because the EU is rich and the policy impact is small. The ensemble of ten models allows me to compute the ambiguity premium, which is small for the same reason. I construct a counterfactual estimate of recent emissions without the climate policy and use that to test the predictive skill of the ten models. The models that show the lowest cost of emission reduction also have the lowest skill for Europe in recent times.",
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Ambiguity Reduction by Objective Model Selection, with an Application to the Costs of the EU 2030 Climate Targets. / Tol, R.S.J.

In: Energies, Vol. 7, No. 11, 2014, p. 6886-6896.

Research output: Contribution to JournalArticleAcademicpeer-review

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