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Dissertation zugänglich unter
An Economic Analysis of the Issues and Challenges in Climate Policy Decision Making
Eine ökonomische Analyse der Probleme und Herausforderungen bei der klimapolitischen Entscheidungsfindung
(2014) Kapitel 5 ist veröffentlicht in: Glanemann, N. (2012). Can international environmental cooperation be bought: Comment. European Journal of Operational Research, 216, 697–699.
Dokument 1.pdf (2.654 KB)
Klimaschutz , Optimierungsproblem
Freie Schlagwörter (Deutsch):
Real Optionen , Klimapolitik , Emissionsreduktion , Anpassung
Freie Schlagwörter (Englisch):
real options , climate policy , mitigation , adaptation
Natürliche Ressourcen, Energie und Umwelt
Funke, Michael (Prof. Dr.)
Tag der mündlichen Prüfung:
Kurzfassung auf Englisch:
Although research on climate policy decision making has made substantial progress in recent years, numerous particular aspects are still not well understood owing to a very complex interplay of the many factors involved. The purpose of this thesis is to provide new insights into the policy response to being confronted with the different (interacting) challenges posed by climate change. In this spirit, particular attention is paid to the effects of facing the following: economic and ecological irreversibilities, the uncertainty and ambiguity, the problem of combining mitigation and adaptation measures, and the implications of the countries’ asymmetries concerning international collective cooperation on emissions reduction.
The first three chapters take a real options perspective that is developed to explicitly account for the tension between uncertainty and economic irreversibility. This approach discloses the value of waiting for new information to arrive that is incorporated in climate policy assessment. In other words, real options quantify the opportunity costs of taking action now rather than waiting for uncertainty to be reduced. It sets the stage for the investigation of how other characteristics of the climate change problem influence policy decisions.
Chapter 2 is motivated by the latest scientific findings that the time to meet climate policy targets, which limit the risk of unacceptable environmental change, is presumably running out. This article allows the question to be posed about whether the knowledge of facing a closing window of opportunity could significantly counteract the incentives to wait, and thus accelerate emission reduction efforts. For this, the paper develops a non-perpetual real options framework in which the option to adopt policies that comply with the target is only available for a limited amount of time. The closing of the window of opportunity is shown to accelerate emission reduction efforts, especially if the option to act expires soon. However, the effects are shown to be comparatively small, which indicates that climate policy inaction is likely to prevail.
Chapter 3 investigates how economic irreversibility and Knightian uncertainty in the climate damage costs affect the decision on when to curb emissions. The existing estimates in the literature of the future climate damage costs are subject to enormous ambiguity. This study transfers the recently made ideas of how to enhance a real options model by Knightain uncertainty to a model that examines the decision on when to curb emissions. First, the decision by an ambiguity-averse policy maker is investigated; and then the analysis extends to a range of ambiguity preferences. This study finds that policy adoption is delayed longer when the policy maker is more optimistic about the future outcomes. Furthermore, this study also identifies that the range of optimal policy responses, which are implied by alternative preferences for ambiguity, is of a non-negligible size. This result emphasizes the difficulties in reaching an objectively justified climate policy decision, as the decision crucially depends on subjective attitudes towards ambiguity.
Chapter 4 directs attention to the question of how mitigation and adaptation can be optimally combined. This study develops a novel real options modelling framework in which the policy maker holds a portfolio of mitigation and adaptation options. This paper demonstrates that the dualistic approach to climate policy is impeded by the interaction of uncertainty and economic irreversibility. Compared to the expected net present value approach, it gives more priority to adaptation as the preferred measure. If the marginal benefits of investing in adaptation are sufficiently low, mitigation is given more emphasis.
Chapter 5 goes beyond considering one global policy maker by taking into account the implications of the countries’ heterogeneity when international environmental cooperation is negotiated. This study addresses the research by Fuentes-Albero & Rubio (2010) which analytically solves a non-linear, game-theoretical model that incorporates two types of countries and continuous strategies. In the case of heterogeneity in the damage costs, the authors conclude that, even though side-payments are not made, an agreement between one high- and one low-damage country is self-enforcing, given that the disparities are not very large. This result is proven to be incorrect by demonstrating that such a coalition is only internally stable, while external stability is not satisfied. Consequently, asymmetries in damage costs provoke countries to defect from cooperative behaviour, unless some mechanism is established to extinguish the free-riding incentives without transgressing any notions of fairness.
Fuentes-Albero, C., & Rubio, S. J. (2010). Can international environmental cooperation be bought? European Journal of Operational Research, 202, 255–264.