Time is Running Out: The 2°C Target and Optimal Climate Policies

29 Pages Posted: 6 Dec 2011

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: November 30, 2011

Abstract

The quintessence of recent natural science studies is that the 2°C target can only be achieved with massive emission reductions in the next few years. The central twist of this paper is the addition of this limited time to act into a non-perpetual real options framework analyzing optimal climate policy under uncertainty. The window-of-opportunity modelling setup shows that the limited time to act may spark a trend reversal in the direction of low-carbon alternatives. However, the implementation of a climate policy is evaded by high uncertainty about possible climate pathways.

Keywords: climate policy, CO2 scenarios, non-perpetual real options

JEL Classification: Q510, Q540, D810

Suggested Citation

Chen, Yu-Fu and Funke, Michael and Glanemann, Nicole, Time is Running Out: The 2°C Target and Optimal Climate Policies (November 30, 2011). CESifo Working Paper Series No. 3664, Available at SSRN: https://ssrn.com/abstract=1968877 or http://dx.doi.org/10.2139/ssrn.1968877

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 (Contact Author)

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

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

Von-Melle-Park 5
Hamburg, 20146
Germany

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