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Abstract

The possibility that human activities, through the use of land for agriculture, deforest-
ation and emission of pollutants into the atmosphere, may alter the climate of the
earth has been long recognised. Also, in recent times, the possible magnitude of those
changes and their relevance for human societies has turned into a major social con-
cern. Consequently great efforts have been made to understand the mechanisms gov-
erning climate change, both in its physical and social dimensions, and to design socio-
economic actions that would prevent its adverse consequences.

In order to pursue this two-fold effort, the most widely accepted scientif,c paradigm
consists in the use of mathematical models of diverse complexity that describe the
coupled system climate - society. At present there are yet many uncertainties and
imperfections in our knowledge of the system, but delaying political action until
uncertainties are solved could have important consequences. Furthermore the system
being considered is stochastic in nature and its natural variability may interact with
and mask the causal relation between human activities and climate change.

In this work we aim at a preliminary study of the potential effects of climate's natural
variability and imperfect knowledge in the design of policy action directed to reduce
greenhouse gas emissions. To this end the robustness of a structural climate - econ-
omy coupled model is tested against different assumptions related to the variability of
climate and the uncertainties of the system. The model adopts the form of a stochastic
optimal control problem, in which an optimal greenhouse gas emission policy is
sought that minimizes a stylized cost function that comprises both the damages
caused by climate change and the socioeconomic costs of reducing emissions.

Results show that although some of the basic results of deterministic models remain
valid, natural variability of climate may play an very important role in the design of
climate protection policies, specially if it is coupled to the man-made greenhouse
effect. Specially adaptation and flexibility emerge as central issues. Unfortunately,
both the nature and magnitude of this coupling are highly uncertain and thus the
results should be further tested.

Also uncertainties related to the magnitude and timing of climate change but most
importantly to the magnitude and nature of the economic damages generated by it,
may play a major role in the design of climate policies. It turns out that values and
ranges of the relevant parameters of the model are very poorly known, and strong
assumptions are needed to assign values to them. These assumptions are in turn
highly dependent on beliefs and political agendas. As a result, the often invoked pre-
cautionary principle has to be characterised with more detail, as to where the major
uncertainties are perceived and the relative values of different parts of the coupled
system.Much work needs to be done yet, in order to elucidate the nature and characteristics of
climate variability and its interaction with climate change. Also the values and uncer-
tainty ranges of parameters relevant to the design of climate policies have to be further
narrowed in order to state the nature and magnitude of their influence in the policy
process.