Publication:
How Delayed Learning about Climate Uncertainty Impacts Decarbonization Investment Strategies

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dc.contributor.authorBauer, Adam Michael
dc.contributor.authorMcIsaac, Florent
dc.contributor.authorHallegatte, Stéphane
dc.date.accessioned2024-03-29T14:16:48Z
dc.date.available2024-03-29T14:16:48Z
dc.date.issued2024-03-29
dc.description.abstractThe Paris Agreement established that global warming should be limited to “well below” 2°C and encouraged efforts to limit warming to 1.5°C. Achieving this goal presents a challenge, especially given (i) economic inertia and adjustment costs, which penalize a swift transition away from fossil fuels, and (ii) climate uncertainty that, for example, hinders the ability to predict the amount of emissions that can be released before a given temperature target is exceeded. This paper presents a modeling framework that explores optimal decarbonization investment strategy when both adjustment costs and climate uncertainty are present. The findings show that climate uncertainty impacts investment in three ways: (i) the cost of policy increases, especially when adjustment costs are present; (ii) abatement investment is front-loaded relative to the certainty policy; and (iii) the sectoral allocation of investment changes to favor declining investment pathways rather than bell-shaped paths. The latter effect is especially pronounced in hard-to-abate sectors, such as heavy industry. Each of these effects can be traced back to the carbon price distribution inheriting a “heavy tail” when climate uncertainty is present. The paper highlights how climate uncertainty and adjustment costs combined result in a more aggressive least-cost strategy for decarbonization investmenten
dc.identifierhttp://documents.worldbank.org/curated/en/099829103282438373/IDU1f2d86d77127091490d1a6df1dc342f15d10b
dc.identifier.doi10.1596/1813-9450-10743
dc.identifier.urihttps://hdl.handle.net/10986/41323
dc.languageEnglish
dc.language.isoen_US
dc.publisherWashington, DC: World Bank
dc.relation.ispartofseriesPolicy Research Working Paper; 10743
dc.rightsCC BY 3.0 IGO
dc.rights.holderWorld Bank
dc.rights.urihttps://creativecommons.org/licenses/by/3.0/igo/
dc.subjectGREEN INVESTMENT
dc.subjectADJUSTMENT COSTS
dc.subjectSTOCHASTIC MODELING
dc.subjectCLIMATE RISK
dc.subjectCARBON PRICE
dc.titleHow Delayed Learning about Climate Uncertainty Impacts Decarbonization Investment Strategiesen
dc.typeWorking Paper
dspace.entity.typePublication
okr.crossref.titleHow Delayed Learning about Climate Uncertainty Impacts Decarbonization Investment Strategies
okr.date.disclosure2024-03-28
okr.date.lastmodified2024-03-28T00:00:00Zen
okr.doctypePolicy Research Working Paper
okr.doctypePublications & Research
okr.docurlhttp://documents.worldbank.org/curated/en/099829103282438373/IDU1f2d86d77127091490d1a6df1dc342f15d10b
okr.guid099829103282438373
okr.identifier.docmidIDU-f2d86d77-2709-490d-a6df-dc342f15d10b
okr.identifier.doi10.1596/1813-9450-10743
okr.identifier.doihttps://doi.org/10.1596/1813-9450-10743
okr.identifier.externaldocumentum34290394
okr.identifier.internaldocumentum34290394
okr.identifier.reportWPS10743
okr.import.id3693
okr.importedtrueen
okr.language.supporteden
okr.pdfurlhttp://documents.worldbank.org/curated/en/099829103282438373/pdf/IDU1f2d86d77127091490d1a6df1dc342f15d10b.pdfen
okr.region.geographicalWorld
okr.topicEnvironment::Carbon Policy and Trading
okr.topicEnvironment::Climate Change Mitigation and Green House Gases
okr.topicEnvironment::Climate Change and Environment
okr.unitGGS-CCG-Finance & Economics Unit (SCCFE)
okr.unitEFI-MTI-Global Macro and Debt (EMFMD)
okr.unitGGSVP-VP
okr.unitSD Practice Group
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relation.isAuthorOfPublication.latestForDiscovery2fea2b63-4a74-5fbd-b964-71ef895df009
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