Analysing the costs and benefits of climate policy: Value judgements and scientific uncertainties

The Stern Review on the Economics of Climate Change compares costs and benefits of stringent climate policy and concludes that the benefits of stringent policy considerably outweigh the costs. Many other cost-benefit analyses have come up with less ambitious optimal emission reductions. In this study, we systematically explore the impacts of scientific uncertainties and value judgements on the suggested "optimal target" for international climate policy. In this context, we have varied the most important parameters using a range of values from several widely used Integrated Assessment Modes in one consistent framework. Our analysis shows that uncertainties about abatement and damage costs play an almost equally important role as the discount rate. Both stringent and moderate climate policy can be justified by using other parameter settings. Furthermore, for most parameter settings there is a wide range of concentration levels close to the optimal target, providing a much wider range for political choices than often suggested.