Research Publication

May 2021 | Preliminary Paper

New Preliminary Paper: “Confronting Uncertainty in the Climate Change Dynamics”

Michael Barnett, William Brock, and Lars Peter Hansen

Abstract

In designing policy to combat climate change, there are many calls for immediate action. However, there has also been some apprehension expressed about acting prematurely based on existing limits to our understanding of the timing and the quantitative magnitude of climate change and its impact on economic and social outcomes. We approach this problem from the perspective of a decision maker who confronts uncertainty in a setting in which there will be future information about damage severity. The value of further empiricism in the near term will be limited as the climate-economic system moves into uncharted territory. The decision maker’s concerns about uncertainty go beyond the standard risk considerations. There is ambiguity over how much credibility to assign to alternative models of climate change and economic damages and all such models are potentially misspecified. These uncertainties add to the challenge of projecting how economic damages in the future will be enhanced with current and future fossil fuel emissions. The solution to the decision problem we pose shows some initial caution until future damage possibilities are more fully revealed. With the more refined information, the decision maker may be either more wary of climate change, or more bullish, and act accordingly depending on what is revealed. We provide a quantitative illustration drawing in part on cross-model ambiguity revealed by pulse experiments conducted by geoscientists.

Tags: Climate, Uncertainty|Export BibTeX >

Abstract

In designing policy to combat climate change, there are many calls for immediate action. However, there has also been some apprehension expressed about acting prematurely based on existing limits to our understanding of the timing and the quantitative magnitude of climate change and its impact on economic and social outcomes. We approach this problem from the perspective of a decision maker who confronts uncertainty in a setting in which there will be future information about damage severity. The value of further empiricism in the near term will be limited as the climate-economic system moves into uncharted territory. The decision maker’s concerns about uncertainty go beyond the standard risk considerations. There is ambiguity over how much credibility to assign to alternative models of climate change and economic damages and all such models are potentially misspecified. These uncertainties add to the challenge of projecting how economic damages in the future will be enhanced with current and future fossil fuel emissions. The solution to the decision problem we pose shows some initial caution until future damage possibilities are more fully revealed. With the more refined information, the decision maker may be either more wary of climate change, or more bullish, and act accordingly depending on what is revealed. We provide a quantitative illustration drawing in part on cross-model ambiguity revealed by pulse experiments conducted by geoscientists.