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Modeling Time-inconsistent Climate Policy

Ek, Claes LU (2010) NEKM01 20101
Department of Economics
Abstract (Swedish)
This paper examines the degree to which dynamic inconsistency in climate policy presents a serious challenge in the sense that exclusively pursuing near-term cost-efficiency implies strong disincentives for policy makers to attain long-term abatement goals. We model technological change and cost-efficient emissions cuts of roughly 80% in the EU-27 energy sector during the forty-year period 2010-2050. Our model features two broad cases, as we contrast `standard' long-term policy optimization with more
short-term, sequential optimization (i.e. across subsections of the 2010-2050 period). We find that changing the policy time frame in this manner has the unfortunate effect of working as a strong disincentive for both long-term and short-term... (More)
This paper examines the degree to which dynamic inconsistency in climate policy presents a serious challenge in the sense that exclusively pursuing near-term cost-efficiency implies strong disincentives for policy makers to attain long-term abatement goals. We model technological change and cost-efficient emissions cuts of roughly 80% in the EU-27 energy sector during the forty-year period 2010-2050. Our model features two broad cases, as we contrast `standard' long-term policy optimization with more
short-term, sequential optimization (i.e. across subsections of the 2010-2050 period). We find that changing the policy time frame in this manner has the unfortunate effect of working as a strong disincentive for both long-term and short-term targets, perhaps even making them politically - though not theoretically - impossible to attain under
most scenarios. One conclusion is that although policy makers may now commit to ambitious emissions reductions deemed realistic based on a long-term analysis, unless targets and policies are sufficiently `locked in' the credibility of those commitments may be doubted. Another is that the idea that climate policy should be cost-efficient in the near term is inherently contradictory, because a decision maker who truly cares
only about the near term has little incentive to undertake climate policy to begin with. (Less)
Please use this url to cite or link to this publication:
author
Ek, Claes LU
supervisor
organization
course
NEKM01 20101
year
type
H1 - Master's Degree (One Year)
subject
keywords
energy, cost-efficiency, dynamic consistency, climate change, long-term targets
language
English
id
1613648
date added to LUP
2010-06-22 11:10:49
date last changed
2010-06-22 11:10:49
@misc{1613648,
  abstract     = {{This paper examines the degree to which dynamic inconsistency in climate policy presents a serious challenge in the sense that exclusively pursuing near-term cost-efficiency implies strong disincentives for policy makers to attain long-term abatement goals. We model technological change and cost-efficient emissions cuts of roughly 80% in the EU-27 energy sector during the forty-year period 2010-2050. Our model features two broad cases, as we contrast `standard' long-term policy optimization with more
short-term, sequential optimization (i.e. across subsections of the 2010-2050 period). We find that changing the policy time frame in this manner has the unfortunate effect of working as a strong disincentive for both long-term and short-term targets, perhaps even making them politically - though not theoretically - impossible to attain under
most scenarios. One conclusion is that although policy makers may now commit to ambitious emissions reductions deemed realistic based on a long-term analysis, unless targets and policies are sufficiently `locked in' the credibility of those commitments may be doubted. Another is that the idea that climate policy should be cost-efficient in the near term is inherently contradictory, because a decision maker who truly cares
only about the near term has little incentive to undertake climate policy to begin with.}},
  author       = {{Ek, Claes}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Modeling Time-inconsistent Climate Policy}},
  year         = {{2010}},
}