Climate policies under climate model uncertainty: Max-min and min-max regret

Armon Rezai*, Frederick van der Ploeg

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

Temperature responses and optimal climate policies depend crucially on the choice of a particular climate model. To illustrate, the temperature responses to given emission reduction paths implied by the climate modules of the well-known integrated assessments models DICE, FUND and PAGE are described and compared. A dummy temperature module based on the climate denialists' view is added. Using a simple welfare-maximising growth model of the global economy, the sensitivity of the optimal carbon price, renewable energy subsidy and energy transition to each of these climate models is discussed. The paper then derives max-min, max-max and min-max regret policies to deal with this particular form of climate (model) uncertainty and with climate scepticism. The max-min or min-max regret climate policies rely on a non-sceptic view of global warming and lead to a substantial and moderate amount of caution, respectively. The max-max leads to no climate policies in line with the view of climate sceptics.

Original languageEnglish
Pages (from-to)4-16
Number of pages13
JournalEnergy Economics
Volume68
Issue numberOctober
DOIs
Publication statusPublished - 2018

Keywords

  • Carbon price
  • Climate model uncertainty
  • Climate sceptics
  • Max-max
  • Max-min
  • Min-max regret
  • Renewable energy subsidy
  • Temperature modules

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