We explore the combined effects of a climate threshold (a potential ocean thermohaline circulation collapse), parameter uncertainty, and learning in an optimal economic growth model. Our analysis shows that significantly reducing carbon dioxide (CO2) emissions may be justified to avoid or delay even small (and arguably realistic) damages from an uncertain and irreversible climate change - even when future learning about the system is considered. Parameter uncertainty about the threshold specific damages and the CO 2 level triggering a threshold can act to decrease near-term CO 2 abatements that maximize expected utility.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics
- Management, Monitoring, Policy and Law