Investment and adaptation as commitment devices in climate policy deteriorate mitigation

Wolfgang Peters, Clemens Heuson (), Reimund Schwarze and Anna-Katharina Topp

VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order from Verein für Socialpolitik / German Economic Association

Abstract: The strategy of adaptation to climate change has become a central topic within the UNFCCC negotiations in recent years. On the national level, adaptation plans are elaborated, and on the international level, the need for funding adaptation in developing countries is discussed. This tendency shows that adaptation is likely to be advanced relative to mitigation on the political agenda. Therefore, we analyze the economic consequences of the timing of mitigation and adaptation in a game-theoretic framework regarding as well the importance of technological investments for mitigation. Due to strategic behavior, the activity in mitigation deteriorates when adaptation is advanced. As a consequence, the resulting subgame-perfect equilibrium yields higher total costs. We demonstrate that this result is even reinforced when technological investments are regarded, i.e. the negative effects of advancing adaptation relative to the opposite timing are amplified.

JEL-codes: C72 H87 Q54 (search for similar items in EconPapers)
Date: 2013
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