Work

Multiple climate ambiguities and optimal carbon emission abatement decisions

Year: 2025

Type: article

Abstract: This paper develops a climate-economy model to study how ambiguity about key climate and economic factors affects carbon abatement decisions. We focus on three sources of ambiguity: climate sensitivity to emissions, climate-related economic damage, and the cost-effectiveness of abatement. Aversion to climate sensitivity and economic damage ambiguity increases abatement, while aversion to abatement cost ambiguity reduces it. When the decision maker believes the extent of climate change or its economic damage is overstated, optimal abatement can drop sharply or even disappear. Perceived relationships among uncertainties can amplify or offset their effects. Our results help explain conflicting attitudes toward carbon policy and highlight the need for frameworks that reflect diverse uncertainty perceptions.

Source: Risk sciences.

DOI: 10.1016/j.risk.2025.100024

Authors: Peixin Liu, Hao Wang, Lihong Zhang

Institutions: University of Illinois Urbana-Champaign, Tsinghua University

Language: English

Topic: Climate Change Policy and Economics

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Climate action

Open Access status: diamond

Funders: National Natural Science Foundation of China, Tsinghua University