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

Richard Tol

Energies, 2014, vol. 7, issue 11, 1-11

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.

Keywords: climate policy; European Union; carbon price; forecast skill; uncertainty (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Working Paper: Ambiguity reduction by objective model selection, with an application to the costs of the EU 2030 climate targets (2014)
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