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GTAP Resource #3786

"The determinants of mitigation costs: emission profile, revenue recycling and transport infrastructure"
by Hamdi-Cherif, Meriem

The debates about climate policies largely focus on the definition of a stabilization objective that would limit the risks linked to climate change and still be acceptable regarding the costs of the decarbonisation process. The latest report of the Intergovernmental Panel on Climate Change (IPCC, 2007) summarizes the findings about alternative options and obtains that the costs of mitigation remain limited (lower than 3% GDP reductions in 2030) even under the most ambitious reductions limiting the temperature increase at +2°C. These assessments provide a normative vision under three main assumptions: optimal functioning of economic interactions (perfect markets, intertemporal optimization), perfect implementation of mitigation measures through carbon price and least-cost trajectories of emissions reductions.
The basic intuitions of this paper are that (1) the time profile of emission reduction will result from a political decision that may depart from economic optimization, which forces to consider the emission objective as an exogenous constraint on the economy rather than part of economic optimization, and (2) the timing of emission reductions is all the more important when considering the second-best nature of economic interactions where inertias and imperfect expectations drive economic dynamics away from its optimal trajectory; (see the debates on the “when flexibility” since 1992)
This paper revisits the notion of “when flexibility” in the context of second-best economies where the constraint imposed on the level of carbon emissions at each date has an ambiguous effect on socio-economic trajectories. On the one hand, as an additional constraint, it may reinforce the sub-optimality of economic adjustments and enhance the costs with respect to the baseline case. But, on the other hand, it may help to correct some suboptimalities of the baseline case and hence contibute to accelerate economic activity.

For the sake of clari...

Resource Details (Export Citation) GTAP Keywords
Category: 2012 Conference Paper
Status: Published
By/In: Presented at the 15th Annual Conference on Global Economic Analysis, Geneva, Switzerland
Date: 2012
Created: Hamdi-Cherif, M. (4/12/2012)
Updated: Hamdi-Cherif, M. (4/30/2012)
Visits: 1,428
- Climate change policy
- Dynamic modeling

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