Philippe Ambrosi

Optimal control models and elicitation of attitudes towards climate damages

This paper examines the consequences of various attitudes towards climate damages through a family of stochastic optimal control models (RESPONSE): cost-efficiency for a given temperature ceiling; cost-benefit analysis with a “pure preference for current climate regime” and full cost-benefit analysis. The choice of a given proxy of climate change risks is actually more than a technical option. It is essentially motivated by the degree of distrust regarding the legitimacy of an assessment of climate damages and the possibility of providing in due time reliable and non controversial estimates. Our results demonstrate that (a) for early decades abatement, the difference between various decision-making frameworks appears to matter less than the difference between stochastic and non stochastic approach given the cascade of uncertainty from emissions to damages; (b) in a stochastic approach, the possibility of non-catastrophic singularities in the damage function is sufficient to significantly increase earlier optimal abatements; (c) a window of opportunity for action exists up to 2040: abatements further delayed may induce significant regret in case of bad news about climate response or singularities in damages.

A Review of Carbon Market Policies and Research

We describe important institutions that shape climate change policies together with a set of key market-reliant instruments. We selectively review the related economic literature, emphasizing empirical studies that assess the efficacy of current policies and the workings of policy-dependent markets. Special attention is given to new carbon finance markets tied to the Kyoto Protocols flexibility mechanisms. Promising areas for future research are identified.

Carbon Markets, Institutions, Policies, and Research

The scale of investment needed to slow greenhouse gas emissions is larger than governments can manage through transfers. Therefore, climate change policies rely heavily on markets and private capital. This is especially true in the case of the Kyoto Protocol with its provisions for trade and investment in joint projects. This paper describes institutions and policies important for new carbon markets and explains their origins. Research efforts that explore conceptual aspects of current policy are surveyed along with empirical studies that make predictions about how carbon markets will work and perform. The authors summarize early investment and price outcomes from newly formed markets and point out areas where markets have preformed as predicted and areas where markets remain incomplete. Overall the scale of carbon-market investment planned exceeds earlier expectations, but the geographic dispersion of investment is uneven and important opportunities for abatement remain untapped in some sectors, indicating a need for additional research on how investment markets work. How best to promote the development and deployment of new technologies is another promising area for study identified in the paper.

Factors affecting levels of international cooperation in carbon abatement projects

The Clean Development Mechanism, a provision of The Kyoto Protocol, allows countries that have pledged to reduce their greenhouse gas emissions to gain credit toward their treaty obligations by investing in projects located in developing (host) countries. Such projects are expected to benefit both parties by providing low-cost abatement opportunities for the investor-country, while facilitating capital and technology flows to the host country. This paper analyzes the Clean Development Mechanism market, emphasizing the cooperation aspects between host and investor countries. The analysis uses a dichotomous (yes/no) variable and three continuous variants to measure the level of cooperation, namely the number of joint projects, the volume of carbon dioxide abatement, and the volume of investment in the projects. The results suggest that economic development, institutional development, the energy structure of the economies, the level of country vulnerability to various climate change effects, and the state of international relations between the host and investor countries are good predictors of the level of cooperation in Clean Development Mechanism projects. The main policy conclusions include the importance of simplifying the project regulation/clearance cycle; improving the governance structure host and investor countries; and strengthening trade or other long-term economic activities that engage the countries.

Local Actions, Global Impacts: International Cooperation and the CDM

We examine the Clean Development Mechanism (CDM) market as form of cooperative involvement between developing-host and developed-investor countries, likely to evolve into a form of Foreign Direct Investment (FDI) with opportunities for further collaboration. We use three variables to measure the level of cooperation, namely number of joint CDM projects, volume of CO2 abatement realized from the CDM projects, and volume of investment in the CDM projects. We rely on international economics and international relations literature to suggest that the levels of economic development and institutional development, energy structures of the economies, country vulnerability to various climate change effects, political constraints, trade, and historic relations between the host and investor countries are good predictors of the level of cooperation in CDM projects. The main policy relevant conclusions include the importance of simplifying the CDM project regulation/clearance cycle as an essential policy option for further growth of joint CDM projects; improving governance structures in the host and investor countries that would lead to higher political stability and trust between the countries for business, including CDM; and strengthening trade or other long-term economic activities that connect the countries for fostering CDM cooperation.

Optimal timing of CO2 mitigation policies for a cost-effectiveness model

This paper deals with the regulation of greenhouse gases emissions related to climate change. We consider a stylized climate-economy sequential model and use a cost-effectiveness approach. The analytical study is based on a dynamic programming method. It provides both a tolerable ceiling of concentration and, under simple conditions involving the marginal abatement cost and emission functions, optimal and effective abatement rates. In particular, we prove how the cost effective abatement rate increases with time. Through the optimal time to act function, we examine in detail the role played by greenhouse gases absorption, growth and discount rates. We also analyze the paths from an intergenerational equity perspective. Numerical examples illustrate the general statements.