Uncertainty in cost-benefit analysis of climate policy : climate-economy model evaluation and extension

Abstract

Global warming is one of the major environmental challenges of the modern era. Current CO₂ emissions produced by humans exceed 40 GtCO₂ per year which will cause global temperature change to reach 4° C or more with probability of 20-60 percent, in spite of attempts to reduce CO₂ emissions in last decades. Therefore, geoengineering could be essential to limit global warming well below 2° C relative to pre-industrial levels and avoid substantial damages. This global warming and climate change cause economic damages which measured by social cost of carbon (SCC). The goal of this dissertation is to assess the uncertainty in cost-benefit analysis of climate change and corresponding damages. The three main chapters of this dissertation begin with retrospectively assessing the role of uncertainty in explaining changes in SCC estimates over time. Then stochastic optimization versions of DICE embedded with two geoengineering options (i.e., solar radiation management and direct air capture) to investigate their abilities to rapidly counteract climate change and assess whether their potential future availability changes the optimal near-term abatement path. Finally, effect of possible economic shock on the optimal near-term abatement path is assessed. Also, we implement constant elasticity of substitution (CES) utility function that includes consumption and climate health as inputs, where we can control the degree of substitutability between the two to reflect the limited ability to substitute economic well being for a desirable climate. The three sections of this dissertation analyze uncertainty in climate change and optimal responses to that. Each looks at different uncertain components of climate change including climate model, carbon cycle, and economic model. We conclude this dissertation with comprehensive insights on uncertainty in climate model, geoengineering techniques, and economic situation.