Uncertainty in an emissions-constrained world

Our study focuses on uncertainty in greenhouse gas (GHG) emissions from anthropogenic sources, including land use and land-use change activities. We aim to understand the relevance of diagnostic (retrospective) and prognostic (prospective) uncertainty in an emissions-temperature setting that seeks to constrain global warming and to link uncertainty consistently across temporal scales. We discuss diagnostic and prognostic uncertainty in a systems setting that allows any country to understand its national and near-term mitigation and adaptation efforts in a globally consistent and long-term context. Cumulative emissions are not only constrained and globally binding but exhibit quantitative uncertainty; and whether or not compliance with an agreed temperature target will be achieved is also uncertain. To facilitate discussions, we focus on two countries, the USA and China. While our study addresses whether or not future increase in global temperature can be kept below 2, 3, or 4 °C targets, its primary aim is to use those targets to demonstrate the relevance of both diagnostic and prognostic uncertainty. We show how to combine diagnostic and prognostic uncertainty to take more educated (precautionary) decisions for reducing emissions toward an agreed temperature target; and how to perceive combined diagnostic and prognostic uncertainty-related risk. Diagnostic uncertainty is the uncertainty contained in inventoried emission estimates and relates to the risk that true GHG emissions are greater than inventoried emission estimates reported in a specified year; prognostic uncertainty refers to cumulative emissions between a start year and a future target year, and relates to the risk that an agreed temperature target is exceeded.     

Joint Implementation in Ukraine: national benefits and implications for further climate pacts

The contribution that no-lose target schemes for non-Annex I (NAI) countries could make to achieve the 2°C target is explored by accounting for the incentives of 18 NAI countries’ participation in no-lose target schemes. Using various scenarios, it is shown that implementing uniform no-lose targets as part of the burden-sharing will not lead to global emissions levels compatible with the 2°C target, because uniform no-lose targets will only be beneficial to a few NAI countries. Employing more lenient uniform no-lose targets or individual no-lose targets for large emitters could increase participation by NAI countries and decrease global emissions, global compliance costs, rents by NAI countries, and compliance costs for Annex I (AI) countries. However, the resulting global emissions levels will not be compatible with attaining the 2°C target. Achieving this target will require more stringent emissions targets for AI countries and more lenient no-lose targets for NAI countries. As such, no-lose targets should account for 20% to 47% of global emissions reductions, while due to emissions trading around two-thirds of global emissions reductions should be realized in NAI countries. Indeed, an effective solution may only require no-lose targets for five to seven of the largest NAI countries.

Policy relevance

No-lose targets are one of a number of instruments discussed under the United Nations Framework Convention on Climate Change New Market Mechanism to integrate NAI countries in global emissions reduction efforts. In contrast to binding reduction targets, which apply penalties if a target is not met, no-lose targets provide incentives for meeting a target, e.g. in the form of excess emissions certificates that can be sold on the global carbon market. The presented simulations show that no-lose targets can result in contributions from NAI countries to global emissions reduction efforts. However, the simulations also show that the necessary incentives for no-lose targets need to be adjusted. AI countries require more ambitious targets and NAI countries require less ambitious no-lose targets than proposed by the Intergovernmental Panel on Climate Change report. Effective no-lose targets may only be required for five to seven of the largest NAI countries.     

Learning about climate change and implications for near-term policy

Climate change is an issue of risk management. The most important causes for concern are not the median projections of future climate change, but the low-probability, high-consequence impacts. Because the policy question is one of sequential decision making under uncertainty, we need not decide today what to do in the future. We need only to decide what to do today, and future decisions can be revised as we learn more. In this study, we use a stochastic version of the DICE-99 model (Nordhaus WD, Boyer J (2000) Warming the world: economic models of global warming. MIT Press, Cambridge, MA, USA) to explore the effect of different rates of learning on the appropriate level of near-term policy. We show that the effect of learning depends strongly on whether one chooses efficiency (balancing costs and benefits) or cost-effectiveness (stabilizing at a given temperature change target) as the criterion for policy design. Then, we model endogenous learning by calculating posterior distributions of climate sensitivity from Bayesian updating, based on temperature changes that would be observed for a given true climate sensitivity and assumptions about errors, prior distributions, and the presence of additional uncertainties. We show that reducing uncertainty in climate uncertainty takes longer when there is also uncertainty in the rate of heat uptake by the ocean, unless additional observations are used, such as sea level rise.     

Action targets: a new approach to international greenhouse gas controls

Abstract

This article introduces and explores a new form of international commitment to limit greenhouse gas (GHG) emissions, called an action target. Action targets differ from other forms of targets, such as the Kyoto Protocol's fixed targets, in that they define a quantity of GHG abatement to be achieved, rather than a future emission level to be reached. This article explains the basic mechanics of how action targets might operate, and analyses the approach across a range of criteria, including uncertainty management and contributions to sustainable development in non-Annex I (developing) countries. The analysis suggests that action targets might improve the prospects of widening and deepening developing country participation in the international climate regime.     

基于各国NDC/INDC目标的全球减排不确定性研究

基于各国提交的165份国家自主贡献文件,以其中提出的减排目标为基准,尽可能充分地考虑了减排目标的范围不确定性、不同经济情景带来的碳强度减排目标不确定性、减排气体种类边界差异、碳排放达峰约束等因素,并通过蒙特卡洛模拟的方法对全球、各区域和主要经济体的温室气体排放总量、不确定度及其来源进行了定量分析.结果表明,到2030年...     

The accountability imperative for quantifying the uncertainty of emission forecasts: evidence from Mexico

Governmental climate change mitigation targets are typically developed with the aid of forecasts of greenhouse-gas (GHG) emissions. The robustness and credibility of such forecasts depends, among other issues, on the extent to which forecasting approaches can reflect prevailing uncertainties. We apply a transparent and replicable method to quantify the uncertainty associated with projections of gross domestic product growth rates for Mexico, a key driver of GHG emissions in the country. We use those projections to produce probabilistic forecasts of GHG emissions for Mexico. We contrast our probabilistic forecasts with Mexico’s governmental deterministic forecasts. We show that, because they fail to reflect such key uncertainty, deterministic forecasts are ill-suited for use in target-setting processes. We argue that (i) guidelines should be agreed upon, to ensure that governmental forecasts meet certain minimum transparency and quality standards, and (ii) governments should be held accountable for the appropriateness of the forecasting approach applied to prepare governmental forecasts, especially when those forecasts are used to derive climate change mitigation targets.

POLICY INSIGHTS

• No minimum transparency and quality standards exist to guide the development of GHG emission scenario forecasts, not even when these forecasts are used to set national climate change mitigation targets.

• No accountability mechanisms appear to be in place at the national level to ensure that national governments rely on scientifically sound processes to develop GHG emission scenarios.

• Using probabilistic forecasts to underpin emission reduction targets represents a scientifically sound option for reflecting in the target the uncertainty to which those forecasts are subject, thus increasing the validity of the target.

• Setting up minimum transparency and quality standards, and holding governments accountable for their choice of forecasting methods could lead to more robust emission reduction targets nationally and, by extension, internationally.

     

To what extent can a long-term temperature target guide near-term climate change commitments?

The question of appropriate timing and stringency of future greenhouse gas (GHG) emission reductions remains an issue in the discussion of mitigation responses to the climate change problem. It has been argued that our near-term action should be guided by a long-term vision for the climate, possibly a long-term temperature target. In this paper, we review proposals for long-term climate targets to avoid ‘dangerous’ climate change. Using probability estimates of climate sensitivity from the literature, we then generate probabilistic emissions scenarios that satisfy temperature targets of 2.0, 2.5, and 3.0°C above pre-industrial levels with no overshoot. Our interest is in the implications of these targets on abatement requirements over the next 50 years. If we allow global industrial GHG emissions to peak in 2025 at 14 GtCeq, and wish to achieve a 2.0°C target with at least 50% certainty, we find that the low sensitivity estimate in the literature suggests our industrial emissions must fall to 9 GtCeq by 2050: equal to the level in 2000. However, the average literature sensitivity estimate suggests the level must be less than 2 GtCeq; and in the high sensitivity case, the target is simply unreachable unless we allow for overshoot. Our results suggest that in light of the uncertainty in our knowledge of the climate sensitivity, a long-term temperature target (such as the 2.0°C target proposed by the European Commission) can provide limited guidance to near-term mitigation requirements.     

Considering the options: climate targets for all countries

This paper assesses five options for targets that could be taken by all countries to meet the ultimate objective of the climate change convention: fixed, binding targets; dynamic targets; non-binding targets; sectoral targets; policies and measures. Each is evaluated according to criteria of environmental effectiveness, cost-effectiveness, contribution to economic growth and sustainable development, and equity. While fixed, binding targets continue to be viable for industrialised countries, they do not seem suitable for many developing countries in the near future. Dynamic targets could alleviate developing countries’ concerns about constraining their development as well as broader concerns about possible introduction of “hot air” in a world trading regime; they could also be considered for some or all industrialised countries. Non-binding targets could be politically appealing to developing countries, alleviate fears about development and/or hot air, but might only allow conditional participation in emissions trading by developing countries. Sectoral targets could offer a pragmatic first step — although their cost-effectiveness might be questioned. Finally, targets based on commitments to implement specific policies and measures might drive mitigation action and be part of negotiated packages including financial and technological co-operation. All these options may coexist in the future.     

Considering the options: climate targets for all countries

Abstract

This paper assesses five options for targets that could be taken by all countries to meet the ultimate objective of the climate change convention: fixed, binding targets; dynamic targets; non-binding targets; sectoral targets; policies and measures. Each is evaluated according to criteria of environmental effectiveness, cost-effectiveness, contribution to economic growth and sustainable development, and equity. While fixed, binding targets continue to be viable for industrialised countries, they do not seem suitable for many developing countries in the near future. Dynamic targets could alleviate developing countries' concerns about constraining their development as well as broader concerns about possible introduction of “hot air” in a world trading regime; they could also be considered for some or all industrialised countries. Non-binding targets could be politically appealing to developing countries, alleviate fears about development and/or hot air, but might only allow conditional participation in emissions trading by developing countries. Sectoral targets could offer a pragmatic first step—although their cost-effectiveness might be questioned. Finally, targets based on commitments to implement specific policies and measures might drive mitigation action and be part of negotiated packages including financial and technological co-operation. All these options may coexist in the future.     

The special climate change fund: origins and prioritisation assessment

Abstract

A central issue in tackling climate change is to understand to what extent different short-term mitigation strategies are consistent with long-term stabilization targets. The present article aims at cross-comparing emission paths derived by plausible short-term policies against those implied by long-term climate targets, comparing, for example, differences in peak periods. Short-term policies considered are, for instance, Kyoto-type targets with or without participation by the USA and/or by developing countries. Long-term targets focus instead on stabilization of CO₂ concentrations, radiative forcing and the increase in atmospheric temperature relative to pre-industrial levels. In order to account for the uncertainty surrounding the climate cycle, for each long-term goal multiple paths of emission—the most probable, the optimistic and the pessimistic projections—are considered in the comparison exercise. Comparative analysis is performed using the FEEM-RICE model, a regional economy—climate model. The results suggest that some early policy action should take place for short-term emissions to be compatible with long-term targets. In particular, the Kyoto-type regimes appear to be on a compatible emission path, at least up to the second commitment period. However, this is no longer the case when assuming a pessimistic realization of the uncertain climate parameters.     

Why is risk aversion unaccounted for in environmental policy evaluations?

U.S. environmental regulations are increasingly influenced by cost-benefit analyses that are performed based on the guidance of the Office of Management and Budget (OMB). The OMB’s Circular A-4 directs Federal agencies to assume “risk neutrality” in conducting regulatory analysis, and in important instances, this guidance is not supported by economic theory. Risk neutrality is computationally convenient, and it can be justified when only the costs and benefits of regulations themselves are uncertain, because these risks are spread across a large population. However, the Circular A-4 does not distinguish between regulations that cause uncertainty and those that reduce pre-existing (i.e. baseline) uncertainty, such as the potential for catastrophic climate change. Basic economic theory shows that risk aversion should be incorporated into evaluations of policies that reduce pre-existing environmental uncertainty. Regulatory analyses generally ignore these risk-reduction benefits, leading to misinformed policymaking. Quantifying risk premiums is difficult and controversial, but no more so than discounting future costs and benefits to present value terms. Similar to how OMB has established discount rates for use in regulatory analyses, a method for when and how to incorporate risk aversion into policy evaluations should replace the blanket guidance for risk neutrality.     

Improving the way we think about projecting future energy use and emissions of carbon dioxide

A variety of decision makers need projections of future energy demand, CO₂ emissions and similar factors that extend many decades into the future. The past performance of such projections has been systematically overconfident. Analysts have often used scenarios based on detailed story lines that spell out “plausible alternative futures” as a central tool for evaluating uncertainty. No probabilities are typically assigned to such scenarios. We argue that this practice is often ineffective. Rather than expanding people’s judgment about the range of uncertainty about the future, scenario-based analysis is more likely to lead to systematic overconfidence, to an underestimate of the range of possible future outcomes. We review relevant findings from the literature on human judgment under uncertainty and discuss their relevance to the task of making probabilistic projections. The more detail that one adds to the story line of a scenario, the more probable it will appear to most people, and the greater the difficulty they likely will have in imagining other, equally or more likely, ways in which the same outcome could be reached. We suggest that scenario based approaches make analysts particularly prone to such cognitive biases, and then outline a strategy by which improved projections, tailored to the needs of specific decision makers, might be developed.     

Macroeconomic analysis of the employment impacts of future EU climate policies

This article gives a detailed account of part of the modelling that was carried out for the assessment of the EU's proposed energy and climate targets for 2030. Using the macro-econometric simulation model, E3ME, and drawing on results from the PRIMES energy systems model, it shows that a 40% reduction in GHG emissions (compared to 1990 levels) could lead to an increase in employment of up to 0.7 million jobs in Europe. Furthermore, if the same GHG reduction target was combined with targets for renewables and energy efficiency, the net increase in jobs could be as high as 1.2 million. Both results are in contrast to the standard findings from computable general equilibrium (CGE) models, reflecting the different underlying assumptions (e.g. labour supply) to the modelling approach. Additional sensitivity testing shows that the ways in which the energy efficiency and renewable measures are funded are important factors in determining overall economic impact.

Policy relevance

In recent years there has been much debate as to whether the European Union should have a single GHG reduction target or a set of targets that also cover renewables and energy efficiency. This paper elaborates on part of the modelling that was carried out for the official assessment of the European Union's proposed energy and climate targets for 2030. Using an empirical, model-based approach, it compares a scenario where there is a single 40% GHG reduction target to a scenario that also includes a 30% renewables target and stricter energy efficiency standards. The model results show that the large investment stimulus needed to meet the combined targets leads to higher levels of GDP and employment. This suggests that there could be medium-term economic and social benefits to including all three targets in the future energy and climate package.     

Thirteen plus one: a comparison of global climate policy architectures

We critically review the Kyoto Protocol and thirteen alternative policy architectures for addressing the threat of global climate change. We employ six criteria to evaluate the policy proposals: environmental outcome, dynamic efficiency, cost-effectiveness, equity, flexibility in the presence of new information, and incentives for participation and compliance. The Kyoto Protocol does not fare well on a number of criteria, but none of the alternative proposals fare well along all six dimensions. We identify several major themes among the alternative proposals: Kyoto is “too little, too fast”; developing countries (DCs) should play a more substantial role and receive incentives to participate; implementation should focus on market-based approaches, especially those with price mechanisms; and participation and compliance incentives are inadequately addressed by most proposals. Our investigation reveals tensions among several of the evaluative criteria, such as between environmental outcome and efficiency, and between cost-effectiveness and incentives for participation and compliance.     

Thirteen plus one: a comparison of global climate policy architectures

We critically review the Kyoto Protocol and thirteen alternative policy architectures for addressing the threat of global climate change. We employ six criteria to evaluate the policy proposals: environmental outcome, dynamic efficiency, cost-effectiveness, equity, flexibility in the presence of new information, and incentives for participation and compliance. The Kyoto Protocol does not fare well on a number of criteria, but none of the alternative proposals fare well along all six dimensions. We identify several major themes among the alternative proposals: Kyoto is “too little, too fast”; developing countries (DCs) should play a more substantial role and receive incentives to participate; implementation should focus on market-based approaches, especially those with price mechanisms; and participation and compliance incentives are inadequately addressed by most proposals. Our investigation reveals tensions among several of the evaluative criteria, such as between environmental outcome and efficiency, and between cost-effectiveness and incentives for participation and compliance.     

Interim targets and the climate treaty regime

Abstract

We propose that international climate change policy would be strengthened by the development and adoption of targets for atmospheric concentrations of greenhouse gases 25–50 years in the future in addition to near- and long-term targets. ‘Interim concentration targets’, which could be accommodated under the current Convention/Protocol framework, would provide several advantages over the current focus on either the short term (e.g. Kyoto Protocol) or the long term (e.g. ultimate stabilization targets). Interim targets would help constrain rates of climate change (which are not sufficiently addressed by short- or long-term targets, even when paired together). They would also provide a means for keeping open the option of achieving a range of long-term goals while uncertainty (and political disagreement) over the appropriate goal is resolved. We substantiate a number of rationales for such an approach, discuss the use of interim targets in other contexts, and illustrate how such targets for climate change policy might be set.     

A no cap but trade proposal for emission targets

One problem in international climate policy is the refusal of large developing countries to accept emission reduction targets. Brazil, China and India together account for about 20% of today's CO₂ emissions. We analyse the case in which there is no international agreement on emission reduction targets, but countries do have domestic targets, and trade permits across borders. We contrast two scenarios. In one scenario, Brazil, China and India adopt their business as usual emissions as their target. In this scenario, there are substantial exports of emission permits from developing to developed countries, and substantial economic gains for all. In the second scenario, Brazil, China and India reduce their emissions target so that they have no net economic gain from permit trade. Here, developing countries do not accept responsibility for climate change (as they bear no net costs), but they do contribute to an emission reduction policy by refusing to make money out of it. Adopting such break-even targets can be done at minor cost to developed and developing countries (roughly $2 bn/year each in extra costs and forgone benefits), while developing countries are still slightly better off than in the case without international emissions trade. This result is robust to variations in scenarios and parameters. It contrasts with Stewart and Wiener (2003) who propose granting ‘hot air’ to developing countries to seduce them to accept targets. In 2020, China and India could reduce their emissions by some 10% from the baseline without net economic costs.     

Counting only the hits? The risk of underestimating the costs of stringent climate policy

This paper warns against the risk of underestimating the costs—and the uncertainty about the costs—of achieving stringent stabilization targets. We argue that a straightforward review of integrated assessment models results produces biased estimates for the more ambitious climate objectives such as those compatible with the 2°C of the European Union and the G8. The magnitude and range of estimates are significantly reduced because only the most optimistic results are reported for such targets. We suggest a procedure that addresses this partiality. The results show highly variable costs for the most ambitious scenarios.     

Delayed action and uncertain stabilisation targets. How much will the delay cost?

Despite the growing concern about actual on-going climate change, there is little consensus on the scale and timing of actions needed to stabilise the concentrations of greenhouse gases. Many countries are unwilling to implement mitigation strategies, at least in the short term, and no agreement on an ambitious global stabilisation target has yet been reached. It is thus likely that international climate policies will be characterized by a high degree of uncertainty over the stringency of the climate objective, and that some countries might delay their participation to global action. What additional economic costs will this delay in the adoption of mitigation measures imply? What would the optimal short-term strategy be given the uncertainty surrounding the climate policy to come? Is there a hedging strategy that decision makers can adopt to cope with delayed action and uncertain targets? This paper addresses these questions by quantifying the economic implications of delaying mitigation action, and by computing the optimal abatement strategy in the presence of uncertainty about a global stabilisation target (which will be agreed upon in future climate negotiations). Results point to short-term inaction as the key determinant for the economic costs of ambitious climate policies. They also indicate that there is an effective hedging strategy that could minimise the cost of climate policy uncertainty over the global stabilisation target: a short-term moderate climate policy would be a good strategy to reduce the costs of delayed action and to cope with uncertainty about the outcome of future climate negotiations. By contrast, failing to curb emissions in the short term imposes rapidly increasing additional costs of compliance.