Integration and Decision-Making Frameworks for Climate Change Policy Public Policy Analysis MS&E 290 March 4, 2004

Overview Elements of Integrated Assessment Two Types of Integrated Assessment Models Policy Optimization Policy Evaluation Uses of Integrated Assessment Models Decision Making Frameworks Deterministic (Optimization, Simulation, Tolerable Windows) Decision Analysis Game Theory

Value/Cost of Emissions Reductions Cost/Benefit Modeling Approach: Balancing the Costs of Controlling Carbon Emissions Against the Costs of the Climate impacts They Cause Marginal Cost of Climate Impacts Value/Cost of Emissions Reductions Marginal Cost of Emissions Control Carbon Emissions

Two Kinds of Integrated Assessment Models Policy Optimization Models Focused on Finding Optimal Level of Emissions Usually Include Impacts at the Aggregate Level Policy Evaluation Models Focused on Simulating Effects of Policies Usually More Detailed Impacts Can be Run Backwards - Tolerable Windows Approach

Types of Integrated Assessment Models Deterministic Models Deterministic Policy Optimization Models Deterministic Policy Evaluation Models Decision Making Under Uncertainty Models Stochastic Policy Optimization Models Stochastic Policy Evaluation Models

Uses Of Integrated Assessment Models Deterministic Models Deterministic Policy Optimization Models Deterministic Policy Evaluation Models - Compute Optimal Carbon Taxes, Control Rates, etc. -Calculate Costs of Meeting Emission/ Concentration/Climate/Impact Targets - Insure Consistency in Assumptions - Assess Interactions and Feedbacks Identify Critical Gaps in Research Project Specific Impacts Decision Making Under Uncertainty Models Stochastic Policy Optimization Models Stochastic Policy Evaluation Models -Assess Optimal Policies Under Uncertainty -Compute Value of Information/Research - Compute Probabilities of Cost/Benefits of Climate Policies Meeting Targets

Some Approaches to the Integration of Costs & Benefits Do Informally Through Careful Choice of Target and Then Minimize Costs to Achieve Iterate Between Tolerable Windows and Optimization Approaches Formal Cost/Benefit Analysis

Deterministic Policy Optimization Models: Balancing the Costs of Controlling Carbon Emissions Against the Costs of Climate Impacts Over Time Optimal With No Impacts Incremental Value/Cost Optimal With Impacts Carbon Emissions Optimal With Impacts Optimal With No Impacts 2000 2100 2000 2100 Time Time

Simple Example of Uncertainty in Policy Optimization Models

Game Theory Formulations Look at Incentives for Countries to Take Action on Their Own or in Coalitions Can Be Either Formulated Either Deterministically or Under Uncertainty May Lead to Over-Estimating Rationality and Propensity of Nations to Act Only in Their Own Self Interest

Key IA Issues How to Integrate: How Much to Aggregate/Disaggregate Method for Integrating How to Value Impacts How to Represent Technologies/Tech. Change How Much to Aggregate/Disaggregate How to Factor in Equity and Sustainability How to Communicate All This to the DMs How to Communicate All this to the Public