INFINITE UNCERTAINTY, FORGOTTEN FEEDBACKS, AND COST-BENEFIT ANALYSIS OF CLIMATE POLICY

Gary Yohe and Richard S.J. Tol ()

No FNU-83, Working Papers from Research unit Sustainability and Global Change, Hamburg University

Abstract: Tol (2003) found evidence that the uncertainty that surrounds estimates of the marginal damage of climate change may be infinite even if total damages are finite and questioned the applicability of expected cost-benefit analysis to global mitigation policy. Yohe (2003) suggested that this problem could be alleviated if international development aid were directed at eliminating the source of the problem – climate induced negative growth rates in a few regions along a handful of troublesome scenarios. The hypothesis about adding a second policy lever to the climate policy calculus is shown to hold, but not as robustly as perhaps expected. Infinite uncertainty and its implications for global mitigation policy can be avoided for a reasonable price in the relatively unlikely event that climate change can cause negative economic growth in a region or two when the portfolio of international policies includes at least two tools.

Keywords: climate policy; development aid; equity weighting; expected cost-benefit analysis (search for similar items in EconPapers)
JEL-codes: Q54 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene and nep-env
Date: 2005-08, Revised 2005-08
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Published, Climatic Change, 83, 429-442

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Working Paper: INFINITE UNCERTAINTY, FORGOTTEN FEEDBACKS, AND COST-BENEFIT ANALYSIS OF CLIMATE POLICY (2005)
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