Climate policy design under uncertainty
The uncertainty surrounding the costs and benefits associated with global climate change mitigation creates enormous obstacles for scientists, stakeholders, and especially policymakers seeking a practical policy solution. Scientists find it difficult to accurately quantify and communicate uncertainty; business stakeholders find it difficult to plan for the future; and policymakers are challenged to balance competing interests that frequently talk past each other. Most emissions trading programs to date have focused on absolute caps that either remain fixed or decline over time. Examples include the US SO2 trading program and NOx Budget Program, the EU Emissions Trading Scheme (EU ETS), Southern California’s NO RECLAIM program, and a host of other regional pollutant trading schemes in the United States. Even the Kyoto Protocol, by most accounts, is viewed as a first step in capping emissions that must then lead to even lower levels in subsequent periods. Yet the uncertainty surrounding climate change suggests that such an approach to regulating greenhouse gas emissions is problematic. On the one hand, we are unsure about what atmospheric concentrations need to be in the long run to prevent dangerous interference with the climate system. And regardless of the stabilization target, considerations of the global economic system and its dependence on fossil fuels suggests that optimal global emissions trajectories will continue to grow for some time (Wigley et al., 1996; Manne and Richels, 1999).
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