Uncertain Outcomes and Climate Change Policy

Robert Pindyck

No 15259, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Focusing on tail effects, I incorporate distributions for temperature change and its economic impact in an analysis of climate change policy. I estimate the fraction of consumption w*(tau) that society would be willing to sacrifice to ensure that any increase in temperature at a future point is limited to tau. Using information on the distributions for temperature change and economic impact from studies assembled by the IPCC and from "integrated assessment models" (IAMs), I fit displaced gamma distributions for these variables. Unlike existing IAMs, I model economic impact as a relationship between temperature change and the growth rate of GDP as opposed to its level, so that warming has a permanent impact on future GDP. The fitted distributions for temperature change and economic impact generally yield values of w*(tau) below 2%, even for small values of tau, unless one assumes extreme parameter values and/or substantial shifts in the temperature distribution. These results are consistent with moderate abatement policies.

JEL-codes: D81 Q5 Q54 (search for similar items in EconPapers)
Date: 2009-08
New Economics Papers: this item is included in nep-ene and nep-env
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Published as Pindyck, Robert S., 2012. "Uncertain outcomes and climate change policy," Journal of Environmental Economics and Management, Elsevier, vol. 63(3), pages 289-303.

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Journal Article: Uncertain outcomes and climate change policy (2012)
Working Paper: Uncertain Outcomes and Climate Change Policy (2009)
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