Climate Policy Decisions under Ambiguity and Pressure of Time

11 Pages Posted: 9 Feb 2013

See all articles by Yu-Fu Chen

Yu-Fu Chen

University of Dundee - Department of Economic Studies

Michael Funke

University of Hamburg - Department of Economics; Tallinn University of Technology (TUT)

Nicole Glanemann

University of Hamburg - Faculty of Economics and Business Administration

Date Written: February 7, 2013

Abstract

This article summarises our studies on the optimal timing of climate policy adoption by focusing on ambiguity in the climate damage cost assessments (Chen et al., 2011) and on the limited time to achieve certain climate policy targets (Chen et al., 2012). Using real options theory, both studies conclude that climate policy adoption should be accelerated. However, the implementation of climate policy is evaded by high uncertainty about critical parameters and possible climate pathways.

Keywords: climate policy, CO2 scenarios, Knightian uncertainty, k-ambiguity, real options, non-perpetual real options

JEL Classification: C61, D81, Q51, Q54

Suggested Citation

Chen, Yu-Fu and Funke, Michael and Glanemann, Nicole, Climate Policy Decisions under Ambiguity and Pressure of Time (February 7, 2013). Review of Environment, Energy and Economics (Re3), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2213814

Yu-Fu Chen

University of Dundee - Department of Economic Studies ( email )

Dundee DD1 4HN, Scotland
United Kingdom
+44 1382 344 383 (Phone)
+44 1382 344 691 (Fax)

Michael Funke

University of Hamburg - Department of Economics ( email )

Von-Melle-Park 5
room 2128 C rise
Hamburg, 20146
Germany

Tallinn University of Technology (TUT) ( email )

Ehitajate tee 5
Tallinn, 12618
Estonia

Nicole Glanemann (Contact Author)

University of Hamburg - Faculty of Economics and Business Administration ( email )

Von-Melle-Park 5
Hamburg, 20146
Germany

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