Ambiguity reduction by objective model selection, with an application to the costs of the EU 2030 climate targets

Tol, Richard S J (2014) Ambiguity reduction by objective model selection, with an application to the costs of the EU 2030 climate targets. Energies, 7 (11). pp. 6886-6896. ISSN 1996-1073

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Abstract

I estimate the cost of meeting the EU 2030 targets for greenhouse gas emission reduction, using statistical emulators of ten alternative models. Assuming a first-best policy implementation, I find that total and marginal costs are modest. The statistical emulators allow me to compute the risk premiums, which are small, because the EU is rich and the policy impact is small. The ensemble of ten models allows me to compute the ambiguity premium, which is small for the same reason. I construct a counterfactual estimate of recent emissions without the climate policy and use that to test the predictive skill of the ten models. The models that show the lowest cost of emission reduction also have the lowest skill for Europe in recent times.

Item Type: Article
Schools and Departments: School of Business, Management and Economics > Economics
Subjects: H Social Sciences > HB Economic theory. Demography
Depositing User: Richard Tol
Date Deposited: 08 Sep 2015 11:48
Last Modified: 06 Mar 2017 12:38
URI: http://sro.sussex.ac.uk/id/eprint/56593

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