Implications of a Lowered Damage Trajectory for Mitigation in a Continuous-Time Stochastic Model

This paper provides counterexamples to the idea that mitigation of greenhouse gases causing climate change, and adaptation to climate change, are always and everywhere substitutes. The author considers optimal policy for mitigating greenhouse gas e...

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Main Author:	Strand, Jon
Format:	Policy Research Working Paper
Language:	English
Published:	2012
Subjects:	ADAPTATION ADAPTATION AFFECTS ADAPTATION COST ADAPTATION COSTS ADAPTATION DECISIONS ADAPTATION MEASURE ADAPTATION POLICY ADAPTATION RESPONSE ADAPTATION TO CLIMATE ADAPTATION TO CLIMATE CHANGE ADAPTIVE POLICY ADAPTIVE RESPONSE ANTICIPATORY ADAPTATION ATMOSPHERE CLIMATE CLIMATE CHANGE CLIMATE CHANGE DAMAGES CLIMATE DAMAGE CLIMATE DAMAGES CLIMATE IMPACT CLIMATE IMPACTS CLIMATE PROOFING COAL COSTS OF ADAPTATION DISCOUNT RATE ECOLOGICAL ECONOMICS ECONOMIC ACTIVITY ECONOMIC MODELS EMISSIONS ENERGY ECONOMICS ENVIRONMENTAL ECONOMICS ENVIRONMENTAL POLICY ENVIRONMENTAL SCIENCE FUTURE CLIMATE CHANGE GHG GHGS GREENHOUSE GREENHOUSE GAS GREENHOUSE GAS EMISSIONS GREENHOUSE GASES INFRASTRUCTURE INVESTMENT IPCC MARGINAL COST MITIGATION MITIGATION COST MITIGATION EFFORTS MITIGATION POLICY NEGATIVE IMPACT POLICY DISCUSSIONS POLICY IMPLICATIONS POLICY INTERVENTION POLICY INTERVENTIONS POLICY RESEARCH POWER PLANTS PP RENEWABLE ENERGY RESOURCE ECONOMICS RISK AVERSION STOCHASTIC PROCESS SUSTAINABLE DEVELOPMENT TEMPERATURES
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110701002720 http://hdl.handle.net/10986/3489

id	okr-10986-3489
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spelling	okr-10986-34892021-04-23T14:02:10Z Implications of a Lowered Damage Trajectory for Mitigation in a Continuous-Time Stochastic Model Strand, Jon ADAPTATION ADAPTATION AFFECTS ADAPTATION COST ADAPTATION COSTS ADAPTATION DECISIONS ADAPTATION MEASURE ADAPTATION POLICY ADAPTATION RESPONSE ADAPTATION TO CLIMATE ADAPTATION TO CLIMATE CHANGE ADAPTIVE POLICY ADAPTIVE RESPONSE ANTICIPATORY ADAPTATION ATMOSPHERE CLIMATE CLIMATE CHANGE CLIMATE CHANGE DAMAGES CLIMATE DAMAGE CLIMATE DAMAGES CLIMATE IMPACT CLIMATE IMPACTS CLIMATE PROOFING COAL COSTS OF ADAPTATION DISCOUNT RATE ECOLOGICAL ECONOMICS ECONOMIC ACTIVITY ECONOMIC MODELS EMISSIONS ENERGY ECONOMICS ENVIRONMENTAL ECONOMICS ENVIRONMENTAL POLICY ENVIRONMENTAL SCIENCE FUTURE CLIMATE CHANGE GHG GHGS GREENHOUSE GREENHOUSE GAS GREENHOUSE GAS EMISSIONS GREENHOUSE GASES INFRASTRUCTURE INVESTMENT IPCC MARGINAL COST MITIGATION MITIGATION COST MITIGATION EFFORTS MITIGATION POLICY NEGATIVE IMPACT POLICY DISCUSSIONS POLICY IMPLICATIONS POLICY INTERVENTION POLICY INTERVENTIONS POLICY RESEARCH POWER PLANTS PP RENEWABLE ENERGY RESOURCE ECONOMICS RISK AVERSION STOCHASTIC PROCESS SUSTAINABLE DEVELOPMENT TEMPERATURES This paper provides counterexamples to the idea that mitigation of greenhouse gases causing climate change, and adaptation to climate change, are always and everywhere substitutes. The author considers optimal policy for mitigating greenhouse gas emissions when climate damages follow a geometric Brownian motion process with positive drift, and the trajectory for damages can be down-shifted by adaptive activities, focusing on two main cases: 1) damages are reduced proportionately by adaptation for any given climate impact ("reactive adaptation"); and 2) the growth path for climate damages is down-shifted ("anticipatory adaptation"). In this model mitigation is a lumpy one-off decision. Policy to reduce damages for given emissions is continuous in case 1, but may be lumpy in case 2, and reduces both expectation and variance of damages. Lower expected damages promote mitigation, and reduced variance discourages it (as the option value of waiting is reduced). In case 1, the last effect may dominate. Mitigation then increases when damages are dampened: mitigation and adaptation are complements. In case 2, mitigation and adaptation are always substitutes. 2012-03-19T18:03:22Z 2012-03-19T18:03:22Z 2011-06-01 http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110701002720 http://hdl.handle.net/10986/3489 English Policy Research working paper ; no. WPS 5724 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank Publications & Research :: Policy Research Working Paper The World Region The World Region
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	ADAPTATION ADAPTATION AFFECTS ADAPTATION COST ADAPTATION COSTS ADAPTATION DECISIONS ADAPTATION MEASURE ADAPTATION POLICY ADAPTATION RESPONSE ADAPTATION TO CLIMATE ADAPTATION TO CLIMATE CHANGE ADAPTIVE POLICY ADAPTIVE RESPONSE ANTICIPATORY ADAPTATION ATMOSPHERE CLIMATE CLIMATE CHANGE CLIMATE CHANGE DAMAGES CLIMATE DAMAGE CLIMATE DAMAGES CLIMATE IMPACT CLIMATE IMPACTS CLIMATE PROOFING COAL COSTS OF ADAPTATION DISCOUNT RATE ECOLOGICAL ECONOMICS ECONOMIC ACTIVITY ECONOMIC MODELS EMISSIONS ENERGY ECONOMICS ENVIRONMENTAL ECONOMICS ENVIRONMENTAL POLICY ENVIRONMENTAL SCIENCE FUTURE CLIMATE CHANGE GHG GHGS GREENHOUSE GREENHOUSE GAS GREENHOUSE GAS EMISSIONS GREENHOUSE GASES INFRASTRUCTURE INVESTMENT IPCC MARGINAL COST MITIGATION MITIGATION COST MITIGATION EFFORTS MITIGATION POLICY NEGATIVE IMPACT POLICY DISCUSSIONS POLICY IMPLICATIONS POLICY INTERVENTION POLICY INTERVENTIONS POLICY RESEARCH POWER PLANTS PP RENEWABLE ENERGY RESOURCE ECONOMICS RISK AVERSION STOCHASTIC PROCESS SUSTAINABLE DEVELOPMENT TEMPERATURES
spellingShingle	ADAPTATION ADAPTATION AFFECTS ADAPTATION COST ADAPTATION COSTS ADAPTATION DECISIONS ADAPTATION MEASURE ADAPTATION POLICY ADAPTATION RESPONSE ADAPTATION TO CLIMATE ADAPTATION TO CLIMATE CHANGE ADAPTIVE POLICY ADAPTIVE RESPONSE ANTICIPATORY ADAPTATION ATMOSPHERE CLIMATE CLIMATE CHANGE CLIMATE CHANGE DAMAGES CLIMATE DAMAGE CLIMATE DAMAGES CLIMATE IMPACT CLIMATE IMPACTS CLIMATE PROOFING COAL COSTS OF ADAPTATION DISCOUNT RATE ECOLOGICAL ECONOMICS ECONOMIC ACTIVITY ECONOMIC MODELS EMISSIONS ENERGY ECONOMICS ENVIRONMENTAL ECONOMICS ENVIRONMENTAL POLICY ENVIRONMENTAL SCIENCE FUTURE CLIMATE CHANGE GHG GHGS GREENHOUSE GREENHOUSE GAS GREENHOUSE GAS EMISSIONS GREENHOUSE GASES INFRASTRUCTURE INVESTMENT IPCC MARGINAL COST MITIGATION MITIGATION COST MITIGATION EFFORTS MITIGATION POLICY NEGATIVE IMPACT POLICY DISCUSSIONS POLICY IMPLICATIONS POLICY INTERVENTION POLICY INTERVENTIONS POLICY RESEARCH POWER PLANTS PP RENEWABLE ENERGY RESOURCE ECONOMICS RISK AVERSION STOCHASTIC PROCESS SUSTAINABLE DEVELOPMENT TEMPERATURES Strand, Jon Implications of a Lowered Damage Trajectory for Mitigation in a Continuous-Time Stochastic Model
geographic_facet	The World Region The World Region
relation	Policy Research working paper ; no. WPS 5724
description	This paper provides counterexamples to the idea that mitigation of greenhouse gases causing climate change, and adaptation to climate change, are always and everywhere substitutes. The author considers optimal policy for mitigating greenhouse gas emissions when climate damages follow a geometric Brownian motion process with positive drift, and the trajectory for damages can be down-shifted by adaptive activities, focusing on two main cases: 1) damages are reduced proportionately by adaptation for any given climate impact ("reactive adaptation"); and 2) the growth path for climate damages is down-shifted ("anticipatory adaptation"). In this model mitigation is a lumpy one-off decision. Policy to reduce damages for given emissions is continuous in case 1, but may be lumpy in case 2, and reduces both expectation and variance of damages. Lower expected damages promote mitigation, and reduced variance discourages it (as the option value of waiting is reduced). In case 1, the last effect may dominate. Mitigation then increases when damages are dampened: mitigation and adaptation are complements. In case 2, mitigation and adaptation are always substitutes.
format	Publications & Research :: Policy Research Working Paper
author	Strand, Jon
author_facet	Strand, Jon
author_sort	Strand, Jon
title	Implications of a Lowered Damage Trajectory for Mitigation in a Continuous-Time Stochastic Model
title_short	Implications of a Lowered Damage Trajectory for Mitigation in a Continuous-Time Stochastic Model
title_full	Implications of a Lowered Damage Trajectory for Mitigation in a Continuous-Time Stochastic Model
title_fullStr	Implications of a Lowered Damage Trajectory for Mitigation in a Continuous-Time Stochastic Model
title_full_unstemmed	Implications of a Lowered Damage Trajectory for Mitigation in a Continuous-Time Stochastic Model
title_sort	implications of a lowered damage trajectory for mitigation in a continuous-time stochastic model
publishDate	2012
url	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110701002720 http://hdl.handle.net/10986/3489
_version_	1764387082730471424

Implications of a Lowered Damage Trajectory for Mitigation in a Continuous-Time Stochastic Model

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