Although the EU is on track to achieve the climate targets of “20-20-20”, there is an ongoing debate over whether a more aggressive emission reduction goal is needed to be set for 2030. The root cause of such debate is not only the lack of scientific understanding of climate change but also severe uncertainties about the pace of change and the extent to which it impacts human and natural systems. The policy implications of climate change uncertainty depend on the proper treatment of uncertainty in integrated assessment models (IAM) of climate change. There have been several attempts to incorporate uncertainty in standard IAM frameworks but the results vary widely across the models. This is in particular important for implementing effective mitigation and adaptation strategies within the EU which require a great deal of coordination among the member states with different levels of economic development and political incentives. The objective of this research is to develop a framework for robust climate policy making under uncertainty. During the first stage of this project I will conduct a through survey of current treatment of uncertainty in standard IAMs to obtain the best practices. In the second stage, I will develop a unifying framework for analyzing decision making under uncertainty in the context of climate change. I will adopt a robust optimization approach to assess climate targets and the optimal pathway to achieve those objectives. This theoretical framework then will be applied to the current and future EU climate targets and the results will be illustrated for climate policy making in Italy as a key Member State.

The objective of this project is to analyse the role of path dependence due to infrastructural lock-in and irreversible investment decisions for the design of optimal energy and climate policies. The project brings together several strands of economics research, namely macroeconomics, public economics, environmental and resource economics and risk and uncertainty, with climate change and energy economics into an integrated assessment. INFRACLIMATE is aimed to go beyond standard models designed to study energy and climate policies, by incorporating irreversible investment decisions, inertia in energy systems and possibility of underutilization of capital stocks. The project has three main objectives. Firstly, to carry out innovative research in the theoretical understanding of the interplay between irreversible investment decisions, high persistence in capital stocks and climate policies. Second, extending the existing Green Paradox literature by focusing on how the irreversibility of investment decisions affect the supply of fossil fuels, and thirdly, to develop a fully-fledged integrated assessment model of economy, energy and climate to quantify the effects of climate policies on investment decisions and the amount of stranded capital assets. A key ingredient of the analysis will be how various forms of uncertainty affect the interactions between investment decisions and climate policies. In doing so, the project will be able to provide a richer characterization of investment decisions and their interaction with energy and climate policies, and to quantify welfare effects of different policy options. INFRACLIMATE is a timely and highly policy relevant project given Europe’s pledges to emissions reductions, high infrastructural lock-ins in the extraction and power sector, and uncertainties about future technological innovations and government’s environmental policies.