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Abstract

Abstract: How much would a rational decision maker be willing to invest in the reduction of uncertainty of climate projections by an order of magnitude? This seemingly technical question requires shedding some light on the foundations of the two leading schools of thought within climate economics: cost benefit and cost effectiveness analysis. While the former takes off from the most solid axiomatic basis, its results are currently not robust regarding some hard to determine input parameters. The latter operationalizes politically decided environmental targets that can be interpreted as an expression of strong sustainability. The 2°C target is of that sort. However under anticipated future learning fundamental conceptual difficulties appear within an interpretation as a hard limit. We offer a new, softer interpretation of the 2°C target that avoids these difficulties. Among other advantages of this new interpretation the question about the expected economic value of the reduction of climate response uncertainty regarding greenhouse gas emissions becomes a well-posed one. Perfect learning in that regard could on average save up to hundreds of billions of Euros per year if a stringent 2°C policy were pursued. It remains to be shown whether our softer interpretation is the only interpretation of a target that would be consistent with learning, or whether a third way between the traditional “hard” and our “soft” interpretation were possible.