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Mitigating Global Warming: A Real Option Approach

Marc Chesney, Pierre Lasserre and Bruno Troja

CIRANO Working Papers from CIRANO

Abstract: Mitigation and adaptation represent two solutions to the issue of global warming. While mitigation aims at reducing CO2 emissions and preventing climate change, adaptation encompasses a broad scope of techniques used to reduce the impacts of climate change once they have occurred. Both have direct negative impacts on a country’s Gross Domestic Product, but costs also arise from temperature increases due to inaction. This paper analyzes the trade-offs between these costs in a real options model with tipping points and the possibility of major catastrophe. We determine the optimal timing and magnitude of mitigation in that framework. Mitigation et adaptation constituent deux façons de lutter contre le changement climatique. En réduisant les émissions de CO2, la mitigation s’attache à empêcher ou ralentir le changement climatique; l’adaptation consiste à en réduire les conséquences. Ces deux types de mesures ont des coûts en termes de produit national brut. Le changement climatique et l’inaction ou des mesures insuffisantes sont également coûteux. Dans cet article nous étudions les arbitrages entre ces coûts dans le cadre d’un modèle d’options réelles comportant des points de basculement climatiques et la possibilité de catastrophe majeure. Nous analysons dans ce cadre la date d’introduction et l’ampleur optimales des mesures de mitigation à adopter.

Keywords: Adaptation; Mitigation; Real Options; Delay; Tipping Point; Climate Change; CO2; Gross Domestic Product; Adaptation; Mitigation; Options réelles; Délai; Point de basculement; Changement climatique; CO2; Produit national brut (search for similar items in EconPapers)
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Date: 2016-07-07
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Handle: RePEc:cir:cirwor:2016s-34