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Environmental Modeling & Assessment

, Volume 17, Issue 1–2, pp 123–136 | Cite as

Mitigation Portfolio and Policy Instruments When Hedging Against Climate Policy and Technology Uncertainty

  • Enrica De Cian
  • Tavoni Massimo
Article

Abstract

In this paper, we use a stochastic integrated assessment model to evaluate the effects of uncertainty about future carbon taxes and the costs of low-carbon power technologies. We assess the implications of such ambiguity on the mitigation portfolio under a variety of assumptions and evaluate the role of emission performance standards and renewable portfolios in accompanying a market-based climate policy. Results suggest that climate policy and technology uncertainties are important with varying effects on all abatement options. The effect varies with the technology, the type of uncertainty, and the level of risk. We show that carbon price uncertainty does not substantially change the level of abatement, but it does have an influence on the mitigation portfolio, reducing in particular energy R&D investments in advanced technologies. When investment costs are uncertain, investments are discouraged, especially during the early stages, but the effect is mitigated for the technologies with technological learning prospects. Overall, these insights support some level of regulation to encourage investments in coal equipped with carbon capture and storage and clean energy R&D.

Keywords

Climate change Information and uncertainty Mitigation 

JEL

C73 H23 Q54 

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Copyright information

© Springer Science+Business Media B.V. 2011

Authors and Affiliations

  1. 1.Fondazione Eni Enrico MatteiMilanItaly
  2. 2.Princeton UniversityPrincetonUSA

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