Modeling Uncertainty and the Economics of Climate Change: Recommendations for Robust Energy Policy

Economic analysis of climate change has become a fundamental instrument for the multidisciplinary research of this global environmental challenge and is increasingly used for informing the ongoing discussion between climate scientists and policy makers. Much progress has been achieved in climate change economics over the past decade, which has led to the refinement of “integrated assessment models” and the development of other approaches that permit analyses of the multiple dimensions of climate change, either individually or jointly. Of particular relevance in this context are cost-benefit and cost-effectiveness analyses. The formulation of climate policy is increasingly becoming reliant on the adequacy of economic analysis, yet many of its aspects are left poorly understood. Both the scientific and policy-making communities therefore agree that economic studies of climate change ought to be perfected. Among the subjects that deserve further in-depth investigation, the issue of uncertainty emerges as, perhaps, the most prominent. The outpouring of literature following the publication of the “Stern Review of the Economics of Climate Change” has brought fundamentally new insights to the field of climate change research, in particular, with regards to the uncertainties by which climate change is intrinsically characterized [2]. Although a number of numerical economic analyses of climate change have employed techniques that in some form account for uncertainty, such as with Monte Carlo simulations or through stochastic differential equations [4], it has become clear that more advanced techniques are needed to more suitably design and evaluate greenhouse gas mitigation policies [3]. Scientists have recently extensively explored the model and parameter space of the economics of climate change, and especially the Stern Review has catalyzed a fundamental rethinking of the economic rationale for action on global warming [1]. While the conditions sufficient to provide a case for strong CO2 abatement activity can today be readily formulated, much more work is needed to create a satisfactory account of the relevant economics. In particular, it needs to be better understood how climate policy makers should handle the abundance of natural and social scientific uncertainties in the field of climate change. This special issue of Environmental Modeling and Assessment is meant to gather front-edge research and innovative analysis in the modeling of uncertainty related to the economics of climate change. The focus is notably on advancements in probabilistic integrated assessment modeling A. Haurie ORDECSYS, Geneva, Switzerland