Ambiguity reduction by objective model selection, with an application to the costs of the EU 2030 climate targets

Richard Tol

Working Paper Series from Department of Economics, University of Sussex Business School

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 climate policy, and use that test the predictive skill of the ten models. The models that show the lowest cost of emission reduction also have the lowest skill.

Keywords: Climate policy; European Union; carbon price; forecast skill; uncertainty (search for similar items in EconPapers)
JEL-codes: Q54 (search for similar items in EconPapers)
Date: 2014-08
New Economics Papers: this item is included in nep-env and nep-eur
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Ambiguity Reduction by Objective Model Selection, with an Application to the Costs of the EU 2030 Climate Targets (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:sus:susewp:7114

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