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Uncertainty in Analyzing Climate Change:
Policy Implications
  January 2005  


Cover Graphic
© Photostogo



Note

Unless otherwise stated, prices are in current dollars.





                
Preface

In addressing climate change, researchers and policymakers face various sources of uncertainty. The potential stakes in making policy choices are high: although emissions restrictions could impose significant costs, many experts believe that, if left unchecked, emissions could ultimately lead to costly damages.

This Congressional Budget Office (CBO) paper--prepared at the request of the Ranking Member of the Senate Committee on Environment and Public Works--provides an overview of the sources of uncertainty that limit the understanding of climate change and complicate the assessment of policies to address it. The paper provides examples of the different ways that analysts have addressed those uncertainties in formulating policy recommendations, illustrates the practical difficulties in doing so, and demonstrates the sensitivity of policy results to variations in assumptions about uncertain elements. Finally, it discusses the implications of uncertainty for three different types of policy responses: research and development, mitigation of greenhouse gas emissions, and adaptation to a warmer climate. In keeping with CBO's mandate to provide objective, nonpartisan analysis, this paper makes no recommendations.

Terry Dinan and Robert Shackleton, Jr., wrote the paper under the direction of Roger Hitchner and Robert A. Dennis. Douglas Hamilton, Arlene Holen, Mark Lasky, Angelo Mascaro, Chad Newcomb, and Elizabeth Robinson of CBO provided valuable comments, as did Peter J. Wilcoxen of Syracuse University, Henry Jacoby of the Massachusetts Institute of Technology, and William Pizer of Resources for the Future. (The assistance of external reviewers implies no responsibility for the final product, which rests solely with CBO.)

Christine Bogusz edited the paper, and John Skeen proofread it. Maureen Costantino prepared the paper for publication and designed the cover, Lenny Skutnik printed the initial copies, and Annette Kalicki and Simone Thomas produced the electronic versions for CBO's Web site.

Douglas Holtz-Eakin
Director
January 2005




CONTENTS
 
  Summary
 
1  Background and Introduction
 
2  Scientific and Economic Sources of Uncertainty

Uncertainty Affecting Costs

Uncertainty Affecting Benefits

 
3  Problems in Valuation

Agriculture: Data Gaps Remain

Health: Questions About Valuing Lives Saved

Human Settlements and Ecosystems: Valuing Damages to Nonmarketed Goods and Services

Catastrophic Damages: Expert Opinions Vary Widely

The Usefulness of Subjective Estimates

 
4  Problems in Aggregation

Problems in Comparing Present Costs and Future Damages

Problems in Determining the Appropriate Level of Risk Reduction

Problems in Aggregating Costs and Benefits Across Regions

 
5  Policy Implications

Research and Development

Mitigation

Adaptation


Table
   
5-1.  An Example of the Advantage of Using a Tax, Rather Than a Cap, to Reduce Carbon Emissions
   
Figures
   
4-1.  The Present Discounted Value of $1,000
5-1.  Projected Change in Temperature in 2100 from a Specific Policy
   
Boxes
   
S-1.  Price- Versus Quantity-Based Economic Incentives
1-1.  Uncertainty and Natural Variability
2-1.  Scientific Understanding About Abrupt Climate Change
5-1.  International Cooperation on Climate Policy
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