Transcript Presentation

Climate Change Scenarios and the
Precautionary Principle
Forthcoming in: Risk and Uncertainty in Environmental and Resource Economics, J.Wesseler,
H.P.Weikard and R.Weaver eds., Edward Elgar
Rossella Bargiacchi
Contact: [email protected]
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Climate Change Scenarios and the Precautionary Principle
• Preliminary considerations:
– Climate change is real ( ? )
– Emission reduction is the only possibility for
prevention
• (alternative: artificial carbon sinks - not operative, to my
knowledge)
– The relations between emissions, climate change,
and economic damage are uncertain and may be
discontinuous (thresholds)
– Emission reduction is costly
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Climate Change Scenarios and the Precautionary Principle
• Research questions:
– What is the optimal level of emission
reduction?
– Are decision makers likely to achieve
such level in reality?
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Climate Change Scenarios and the Precautionary Principle
• Structure of presentation:
– Introduction and characterization of scenarios
– Derivation of a utility function within a scenario
– Models of choice of optimal emission levels
– Simulations and results
– Conclusions
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Climate Change Scenarios and the Precautionary Principle
• Scenarios are descriptions of possible future
developments of a set of variables
(demographic, economic, and environmental
variables)
• => treat scenarios as special states of the world,
each representing some combination of
hypotheses about interactions between climate
and economy
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Climate Change Scenarios and the Precautionary Principle
• Utility within a scenario presents thresholds:
c: consumption
u(c): utility
B: location of the threshold v(B-c): environmental
α: impact of crossing the
amenity
threshold
~

~

u c   v B  c  if c  B

~ ~
 


 
U  c |  B,     
~
   ~ 
 
u  c 
if c  B


 
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Climate Change Scenarios and the Precautionary Principle
(a ) De ns itie s for thre e diffe re nt s ce na rios
(B)
(B)
(B)
0
1
(b) Re la tive utility functions
EU s c   f c; s , ls 
EU2 (c)
1-l2(α)
EU1 (c)
1-l1(α) =1-l3(α)
EU3 (c)
0
0.1
0.2
0.3
0.4
c1
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0.6
c2
c3
c4
1
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Climate Change Scenarios and the Precautionary Principle
• Models of choice in the face of uncertainty
– Rationality benchmark: Expected Utility theory
(EU)
– Descriptive benchmark: Rank Dependent Utility
theory (RDU) with inverse-S shaped transformation
function
– Proposed model: RDU with convex weighting
function
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Climate Change Scenarios and the Precautionary Principle
• In 1992 the United Nations stated the so-called
Precautionary Principle:
«In order to protect the environment, the
precautionary approach shall be widely applied
by States according to their capabilities. Where
there are threats of serious or irreversible
damage, lack of full scientific certainty shall not
be used as a reason for postponing cost-effective
measures to prevent environmental
degradation.»
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Climate Change Scenarios and the Precautionary Principle
• Precaution is “an action done to avoid possible
danger”: we should pay attention to the worse
outcomes
• Rank Dependent Utility (RDU) with convex
transformation function systematically attaches more
weight to worse outcomes
• => use RDU to implement the Precautionary
Principle
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Climate Change Scenarios and the Precautionary Principle
• Results
– Proposition 1 For given π(B), and for convex
weighting functions, an individual that maximizes
RDU always chooses a level of consumption nonlarger than an individual that maximizes EU
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(a) Example of 2 scenarios
1
0.8
0.6
EU 1(c)
0.4
EU 2 (c)
0.2
0
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
(b) Expected utility and rank-dependent (=0.5) utility functions
0.7
0.6
EU(c)
0.5
0.4
RDU(c)
0.3
0.2
0c**
c*
1
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Climate Change Scenarios and the Precautionary Principle
– For more general assumptions no general results can
be derived.
(a) Utility functions within scenarios
(a) Example of 3 scenarios
0.8
1
Scenario 2
Scenario 3
0.8
0.7
0.6
0.6
Scenario 1
0.5
0.4
0.4
0.2
0
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
(b) Expected utility and rank-dependent (=0.4) utility functions
0.75
0.8
0.7
Scenario 2
Scenario 1
0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
(b) Expected utility and rank-dependent utility functions
across scenarios
0.7
EU(c)
RDU(c)
0.6
0.65
0.5
0.6
0.4
0.55
0
EU(c)
RDU(c)
0
c** c*
1
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c*
c**
1
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Climate Change Scenarios and the Precautionary Principle
– Numerical simulations with pseudo-randomly chosen
parameters show that:
– RDU with convex weights leads to higher emissions
than EU for 12% of generated parameters
combinations
– RDU with inverse-S shaped weights leads to higher
emissions than EU for 31% of generated parameters
combinations
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Climate Change Scenarios and the Precautionary Principle
• Conclusions
– The precautionary principle implies sensitivity to
physical parameters (here B and α), not just to
economic assumptions
– Prudent behavior can lead to higher emission levels
than EU would predict
– Inverse-S shaped decision makers are likely to
choose too high emission levels: it is relevant to
understand how actual policy makers behave in the
face of uncertainty
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