Climate Policy Under Fat-Tailed Risk: An Application of Dice

Uncertainty plays a significant role in evaluating climate policy, and fat-tailed uncertainty may dominate policy advice. Should we make our utmost effort to prevent the arbitrarily large impacts of climate change under deep uncertainty? In order to answer to this question, we propose a new way of investigating the impact of (fat-tailed) uncertainty on optimal climate policy: the curvature of the optimal carbon tax against the uncertainty. We find that the optimal carbon tax increases as the uncertainty about climate sensitivity increases, but it does not accelerate as implied by Weitzman's Dismal Theorem. We find the same result in a wide variety of sensitivity analyses. These results emphasize the importance of balancing the costs of climate change against its benefits, also under deep uncertainty. © 2013 Springer Science+Business Media Dordrecht

Comment on ‘The Global Impacts of Extreme Sea-Level Rise: A Comprehensive Economic Assessment’

Pycroft et al. (Environ Resour Econ 1–29, 2015) used incorrect and outdated data to study the economic impact of sea level rise. Theymisinterpret some of their input data, and fail to exploit the strengths of their computable general equilibrium model and previously developed methods to study impacts and adaptation

A methodology for the risk assessment of climate variability and change under uncertainty

Existing methods for the assessment of the potential impacts of climate change in productive activities and sectors are usually limited to point estimates that do not consider the inherent variability and uncertainty of climatic and socioeconomic variables. This is a major drawback given that only a limited and potentially misleading estimation of risk can be expected when ignoring such determinant factors. In this paper, a new methodology is introduced that is capable of integrating the agent's beliefs and expert judgment into the assessment of the potential impacts of climate change in a quantitative manner by means of an objective procedure. The goal is to produce tailor-made information to assist decision-making under uncertainty in a way that is consistent with the current state of knowledge and the available subjective "expert" information. Time-charts of the evolution of different risk measures, that can be relevant for assisting decision-making and planning, can be constructed using this new methodology. This methodology is illustrated with a case study of coffee production in Mexico. Time-dependent probabilistic scenarios for coffee production and income, conditional on the agent's beliefs and expert judgment, are developed for the average producer under uncertain future conditions. It is shown that variability in production and income, generated by introducing climate variability and uncertainty are important factors affecting decision-making and the assessment of economic viability that are frequently ignored. The concept of Value at Risk, commonly applied in financial risk management, is introduced as a means for estimating the maximum expected loss for a previously chosen confidence level. Results are tailor-made for agents that have incomplete information and different beliefs. In this case study, the costs of climate change for coffee production in Veracruz are estimated to have a present value representing from 3 to 14 times the current annual value of coffee production in the state. © 2011 The Author(s)

Adaptation in integrated assessment modeling: where do we stand?

Adaptation is an important element on the climate change policy agenda. Integrated assessment models, which are key tools to assess climate change policies, have begun to address adaptation, either by including it implicitly in damage cost estimates, or by making it an explicit control variable. We analyze how modelers have chosen to describe adaptation within an integrated framework, and suggest many ways they could improve the treatment of adaptation by considering more of its bottom-up characteristics. Until this happens, we suggest, models may be too optimistic about the net benefits adaptation can provide, and therefore may underestimate the amount of mitigation they judge to be socially optimal. Under some conditions, better modeling of adaptation costs and benefits could have important implications for defining mitigation targets. © Springer Science+Business Media B.V. 2009

U.S. Natural Resources and Climate Change: Concepts and Approaches for Management Adaptation

Public lands and waters in the United States traditionally have been managed using frameworks and objectives that were established under an implicit assumption of stable climatic conditions. However, projected climatic changes render this assumption invalid. Here, we summarize general principles for management adaptations that have emerged from a major literature review. These general principles cover many topics including: (1) how to assess climate impacts to ecosystem processes that are key to management goals; (2) using management practices to support ecosystem resilience; (3) converting barriers that may inhibit management responses into opportunities for successful implementation; and (4) promoting flexible decision making that takes into account challenges of scale and thresholds. To date, the literature on management adaptations to climate change has mostly focused on strategies for bolstering the resilience of ecosystems to persist in their current states. Yet in the longer term, it is anticipated that climate change will push certain ecosystems and species beyond their capacity to recover. When managing to support resilience becomes infeasible, adaptation may require more than simply changing management practices—it may require changing management goals and managing transitions to new ecosystem states. After transitions have occurred, management will again support resilience—this time for a new ecosystem state. Thus, successful management of natural resources in the context of climate change will require recognition on the part of managers and decisions makers of the need to cycle between “managing for resilience” and “managing for change.