1. Rossella Bargiacchi Contact: R.Bargiacchi@uvt.nl
Climate Change Scenarios and the Precautionary Principle Forthcoming in: Risk and Uncertainty in Environmental and Resource Economics, J.Wesseler, H.P.Weikard and R.Weaver eds., Edward Elgar
Rossella Bargiacchi
Contact:
Rossella Bargiacchi

2. Climate Change Scenarios and the Precautionary Principle
Preliminary considerations:
Climate change is real ( ? )
Emission reduction is the only possibility for prevention
(alternative: artificial carbon sinks - not operative, to my knowledge)
The relations between emissions, climate change, and economic damage are uncertain and may be discontinuous (thresholds)
Emission reduction is costly
Rossella Bargiacchi

3. Climate Change Scenarios and the Precautionary Principle
Research questions:
What is the optimal level of emission reduction?
Are decision makers likely to achieve such level in reality?
Rossella Bargiacchi

4. Climate Change Scenarios and the Precautionary Principle
Structure of presentation:
Introduction and characterization of scenarios
Derivation of a utility function within a scenario
Models of choice of optimal emission levels
Simulations and results
Conclusions
Rossella Bargiacchi

5. Climate Change Scenarios and the Precautionary Principle
Scenarios are descriptions of possible future developments of a set of variables (demographic, economic, and environmental variables)
=> treat scenarios as special states of the world, each representing some combination of hypotheses about interactions between climate and economy
Rossella Bargiacchi

6. Climate Change Scenarios and the Precautionary Principle
Utility within a scenario presents thresholds:
c: consumption
B: location of the threshold
α: impact of crossing the
threshold
u(c): utility
v(B-c): environmental
amenity
Rossella Bargiacchi

7. Climate Change Scenarios and the Precautionary Principle
1-l1(α) =1-l3(α)
1-l2(α)
Rossella Bargiacchi

8. Climate Change Scenarios and the Precautionary Principle
Models of choice in the face of uncertainty
Rationality benchmark: Expected Utility theory (EU)
Descriptive benchmark: Rank Dependent Utility theory (RDU) with inverse-S shaped transformation function
Proposed model: RDU with convex weighting function
Rossella Bargiacchi

9. Climate Change Scenarios and the Precautionary Principle
In 1992 the United Nations stated the so-called Precautionary Principle:
«In order to protect the environment, the precautionary approach shall be widely applied by States according to their capabilities. Where there are threats of serious or irreversible damage, lack of full scientific certainty shall not be used as a reason for postponing cost-effective measures to prevent environmental degradation.»
Rossella Bargiacchi

10. Climate Change Scenarios and the Precautionary Principle
Precaution is “an action done to avoid possible danger”: we should pay attention to the worse outcomes
Rank Dependent Utility (RDU) with convex transformation function systematically attaches more weight to worse outcomes
=> use RDU to implement the Precautionary Principle
Rossella Bargiacchi

11. Climate Change Scenarios and the Precautionary Principle
Results
Proposition 1 For given π(B), and for convex weighting functions, an individual that maximizes RDU always chooses a level of consumption non-larger than an individual that maximizes EU
Rossella Bargiacchi

12. Rossella Bargiacchi

13. Climate Change Scenarios and the Precautionary Principle
For more general assumptions no general results can be derived.
Rossella Bargiacchi

14. Climate Change Scenarios and the Precautionary Principle
Numerical simulations with pseudo-randomly chosen parameters show that:
RDU with convex weights leads to higher emissions than EU for 12% of generated parameters combinations
RDU with inverse-S shaped weights leads to higher emissions than EU for 31% of generated parameters combinations
Rossella Bargiacchi

15. Climate Change Scenarios and the Precautionary Principle
Conclusions
The precautionary principle implies sensitivity to physical parameters (here B and α), not just to economic assumptions
Prudent behavior can lead to higher emission levels than EU would predict
Inverse-S shaped decision makers are likely to choose too high emission levels: it is relevant to understand how actual policy makers behave in the face of uncertainty
Rossella Bargiacchi