The Impacts of Climate Variability on Near-Term Policy Choices and the Value of Information

Variability is one of the most salient features of the earth's climate, yet quantitative policy studies have generally ignored the impact of variability on society's best choice of climate-change policy. This omission is troubling because an adaptive emissions-reduction strategy, one that adjusts abatement rates over time based on observations of damages and abatement costs, should perform much better against extreme uncertainty than static, best-estimate policies. However, climate variability can strongly affect the success of adaptive-abatement strategies by masking adverse trends or fooling society into taking too strong an action. This study compares the performance of a wide variety of adaptive greenhouse-gas-abatement strategies against a broad range of plausible future climate-change scenarios. We find that: i) adaptive strategies remain preferable to static, best-estimate policies even with very large levels of climate variability; ii) the most robust strategies are innovation sensitive, that is, adjust future emissions reduction rates on the basis of small changes in observed abatement costs but only for large changes in observed damages; and iii) information about the size of the variability is about a third to an eighth as valuable as information determining the value of the key parameters that represent the long-term, future climate-change state-of-the-world.