The impacts of uncertainties on the carbon mitigation design: Perspective from abatement cost and emission rate

Abstract

In this paper, we use a stochastic dynamic programming model to evaluate the impacts of uncertainties on the abatement planning process. By involving the endogenous emission path, we differentiate two types of uncertainties during the planning process, which come from the volatility of the abatement cost and the ambiguity of emission rate. Results suggest that the considered uncertainties influence the decision-making process in several aspects by shaping the abatement path as well as emission path. (1) The impacts vary with the expected value and the level of variance of the uncertainty effects. Uncertainties caused by abatement costs from 0.02 to 0.06 and emission factors from 0.01 to 0.03 increase the total abatement costs around 7% and 5% respectively. (2) Both of these uncertainties can generate precautionary abatement in short-term. Especially during the early stages, the abatement task will be increased by 1% around in each period due to the uncertainties. However such an action will be diminishing as the duration elapses. (3) Both of these uncertainties influence the long-term abatement performances, however, with different forms and mechanisms. With small volatility, the emission rate changes the priority sequence of abatement actions more substantially in the short-term than the emission rate does. (4) The combined uncertainties can behave in a compound way to improve the uncertainty performance in the model. The difference between the emission peaks of conservative and extreme cases is significant with the gap being about 5 million metric ton. These results have potentially important policy implications and can provide a rationale for abatement actions.