Valuing Climate Change Mitigation

Valuing Climate Change Mitigation

Applying Stated Preferences in the Presence of Uncertainty

Sonia Akter and Jeff Bennett

Valuing Climate Change Mitigation discusses the role of uncertainty in valuing the benefits of climate change mitigation policies using contingent valuation and choice experiment techniques. It treats climate change using three dimensions of uncertainty: scenario, policy and preference. Conceptual frameworks are advanced to account simultaneously for these various dimensions of uncertainty. The authors then explore the impact of introducing these uncertainties into benefit estimates for the Australian Carbon Pollution Reduction Scheme.

Chapter 6: Climate Change Uncertainty and Contingent Valuation Welfare Estimates

Sonia Akter and Jeff Bennett

Subjects: economics and finance, environmental economics, valuation, environment, climate change, environmental economics, valuation

Extract

6.1 INTRODUCTION This chapter investigates the influence of scenario and policy uncertainty on values of climate change mitigation. An analytical model is developed to assess individual WTP to support the CPRS by simultaneously accounting for subjective scenario and policy uncertainty. Primary data collected using the CV split sample were used to estimate the model. Scenario uncertainty was measured using respondents’ best, high and low guesses of temperature change in 2100 relative to the current year. Policy uncertainty was measured by eliciting respondents’ best, high and low guesses regarding the success of the CPRS in slowing down climate change with and without global cooperation. Respondents were asked if they would be willing to bear extra household expenses each month on behalf of their household to support the proposed CPRS. A single-bounded DC elicitation format was used to frame the WTP question. Respondents’ answers to this question were modelled using the binary probit regression technique. Two regression models were estimated. The first accounts only for scenario uncertainty and disregards policy uncertainty. The second accounts for both scenario and policy uncertainty. The key hypothesis tested in this chapter is that the model that accounts for both scenario and policy uncertainty is superior to the one that accounts only for scenario uncertainty. The superiority of one model over the other is assessed depending on their construct validity and model fit statistics. The next section develops the analytical model in light of the theories discussed in Chapter 2. Section 6.3 discusses variable construction, followed by...

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