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The Curious Role of "Learning" in Climate Policy: Should We Wait for More Data?

Abstract:
Given the large uncertainties regarding potential damages from climate change and the significant but also uncertain costs of reducing greenhouse emissions, the debate over a policy response is often framed as a choice of acting now or waiting until the uncertainty is reduced. Implicit in the "wait to learn" argument is the notion that the ability to learn in the future necessarily implies that less restrictive policies should be chosen in the near term. I demonstrate in the general case that the ability to learn in the future can lead to either less restrictive or more restrictive policies today. I also show that the initial decision made under uncertainty will be affected by future learning only if the actions taken today change the marginal costs or marginal damages in the future. Results from an intermediate-scale integrated model of climate and economics indicate that the choice of current emissions restrictions is independent of whether or not uncertainty is resolved before future decisions, because, like most models, the cross-period interactions are minimal. With stronger interactions, the effect of learning on initial period decisions can be more important.

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Energy Specializations: Energy and the Environment – Climate Change and Greenhouse Gases; Energy and the Environment – Policy and Regulation

JEL Codes:
Q54 - Climate; Natural Disasters and Their Management; Global Warming
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General

Keywords: Climate policy, uncertainty, learning, Environmental policy, climate change, integrated assessment model

DOI: 10.5547/ISSN0195-6574-EJ-Vol23-No2-4


Published in Volume23, Number 2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.