The Benefits of Cooperation Under Uncertainty: the Case of Climate Change

Abstract

This article presents an analysis of the behaviour of countries defining their climate policies in an uncertain context. The analysis is made using the S-CWS model, a stochastic version of an integrated assessment growth model. The model includes a stochastic definition of the climate sensitivity parameter. We show that the impact of uncertainty on policy design critically depends on the shape of the damage function. We also examine the benefits of cooperation in the context of uncertainty: We highlight the existence of an additional benefit of cooperation, namely risk reduction.

Climate Policies: A Burden, or a Gain?

“…We do this by using our own integrated assessment model, namely CWS, 4 so as to see whether the Stern result can be confirmed by means of this alternative measurement tool. 5 The integrated assessment model we employ, CWS (for CLIMNEG World Simulation model), is close the original RICE model by Nordhaus and Yang (1996) or its variations as in Eyckmans and Tulkens (2003), Bréchet et al (2012), and Yang (2008). In the model, the world is split into 18 regions or countries.…”

“…A full description of the CWS model can be found inBréchet et al (2011) for the 6--region version, and inBréchet et al (2012) for the 18--region version (which is, by the way, also stochastic). 5 SeeKolstad and Toman (2005) for an introduction and overview of integrated assessment climate-economy models andBréchet and Luterbacher (2013) for a discussion on their usefulness for policy support.…”

Climate Policies: A Burden or a Gain?

“…We do this by using our own integrated assessment model, namely CWS, 4 so as to see whether the Stern result can be confirmed by means of this alternative measurement tool. 5 The integrated assessment model we employ, CWS (for CLIMNEG World Simulation model), is close the original RICE model by Nordhaus and Yang (1996) or its variations as in Eyckmans and Tulkens (2003), Bréchet et al (2012), andYang (2008). In the model, the world is split into 18 regions or countries.…”

“…gross output (Y, driven by capital accumulation and population growth) net of investment in capital (I), emission abatement costs (C) and climate damages (D, driven by GHGs concentration and temperature increase), so that we have Z = Y -I -C -D for all countries and at all time periods. 4 A full description of the CWS model can be found in Bréchet et al (2011) for the 6--region version, and in Bréchet et al (2012) for the 18--region version (which is, by the way, also stochastic). 5 See Kolstad and Toman (2005) for an introduction and overview of integrated assessment climate--economy models and Bréchet and Luterbacher (2013) for a discussion on their usefulness for policy support.…”

The benefits of international cooperation under climate uncertainty: a dynamic game analysis

“…Battaglini and Harstad (2016) studies the participation and duration of international environmental agreements in a dynamic game in which countries pollute and invest in green technologies when the contract is incomplete. Bréchet et al (2012) numerically examines the benefits of international climate cooperation under uncertainty through a stochastic integrated assessment model, finding that uncertainty generates additional benefit from cooperation, namely risk reduction.…”