The Comparative Impact of Integrated Assessment Models’ Structures on Optimal Mitigation Policies

Abstract

This paper aims at providing a consistent framework to appraise alternative modeling choices that have driven the so-called “when flexibility” controversy since the early 1990s, dealing with the optimal timing of mitigation efforts and the social cost of carbon (SCC). The literature has emphasized the critical impact of modeling structures on the optimal climate policy. We estimate within a unified framework the comparative impact of modeling structures and investigate the structural modeling drivers of differences in climate policy recommendations. We use the integrated assessment model (IAM) RESPONSE to capture a wide array of modeling choices. Specifically, we analyse four emblematic modeling choices, namely the forms of the damage function (quadratic vs. sigmoid) and the abatement cost (with or without inertia), the treatment of uncertainty, and the decision framework, deterministic or sequential, with different dates of information arrival. We define an original methodology based on an equivalence criterion to compare modeling structures, and we estimate their comparative impact on two outputs: the optimal SCC and abatement trajectories. We exhibit three key findings: (1) IAMs with a quadratic damage function are insensitive to changes of other features of the modeling structure, (2) IAMs involving a non-convex damage function entail contrasting climate strategies, (3) Precautionary behaviors can only come up in IAMs with non-convexities in damage.