Modeling Future Climate to Make Decisions Today
While biophysical climate research depends strongly on historical records, a challenge for socio-economic research concerns the need to look forward and act today based on expectations of the future. DOE researchers from the Massachusetts Institute of Technology Joint Program on the Science and Policy of Global Change have published a new study comparing the results of their Emissions Prediction and Policy Analysis (EPPA) model solved as a recursive dynamic or as a forward-looking model. A recursive dynamic solution is obtained by solving for equilibrium in all markets one period at a time, reflecting the historical evolution of capital stock, GDP growth, prices, and other time-dependent variables. In a forward-looking model, all time periods are solved simultaneously using a simplified model, and so decisions made in early periods take into account the values of economic variables in all future periods. The goal was to see how the forward-looking solution approach affected results, since more complex versions of the EPPA model cannot be solved as forward-looking models. The study analyzes three different U.S. climate scenarios with varying levels of emissions abatement occurring between 2012 and 2050. The researchers found that the forward-looking and the recursive models produced very similar emissions abatement and carbon price paths, reassuring consistency, as it implies that the recursive model, which can be extended to longer time horizons and more geographic regions and include greater technological detail, approximates well the results of the forward-looking approach in terms of prices and emissions.
Gurgel, A. C., S. Paltsev, J. Reilly, and G. Metcalf. 2011. “An Analysis of U.S. Greenhouse Gas Cap-and-Trade Proposals Using a Forward-Looking Economic Model,” Environment and Development Economics 16, 155–76. DOI:10.1017/S1355770X10000495.