18 - The role of expectations in modeling costs of climate change policies

Summary

Introduction

Policies to address climate change in the European Union and the United States, as well as international negotiations under the UN Framework Convention on Climate Change, have come to share a surprising feature. All define carbon limits over only a very short time-frame compared with either the timescales characteristic of climate processes or the time horizon over which investments in mitigation measures must be evaluated. The Kyoto Protocol set national greenhouse gas emission targets only through 2012, and did not allow negotiations on targets for the Second Commitment period from 2013 to 2017 to begin until the protocol enters into force. In the European Union, a pilot emission trading system has been set up for the years 2005–2007, but targets and allocations for the First Commitment period limits were not specified. In the United States, proposed legislation to limit US greenhouse gas emissions has been specific about limits to 2020 but purposely ambiguous about limits further in the future.

The short time horizons arise at least in part from the fundamental impossibility of binding future governments (through legislation or treaty) to policies that must be implemented and enforced over the indefinite future. Short policy horizons pose very difficult problems for assessing costs because silence on long-term limits leaves considerable ambiguity over long-term expectations about policies not yet enacted.