UNCERTAIN CLIMATE-CHANGE AND THE INTERNATIONAL-POLICY RESPONSE

The implications of alternative policy responses to uncertain climate change are analyzed within the context of a simple dynamic economic model. The analysis emphasizes two sources of uncertainty that surround climate change - scientific uncertainty about how greenhouse gas emissions affect the climate and natural climatic variability. The analysis also incorporates an economy's ability to mitigate climate changes through emissions reductions as well as its ability to adapt to such changes through adjusting production decisions. While the model is very stylized, and excludes some broader issues of social optimality and the allocation of rights to resources across generations, basic implications of uncertainty in a dynamic world are highlighted that have not been previously discussed. These results suggest that analysts will have a difficult time trying to determine whether a certain emissions strategy improves economic efficiency - whether the benefits are greater than the costs - when uncertainty is explicitly incorporated into the analysis.