Valuing Climate Change Mitigation: Applying Stated Preferences in the Presence of Uncertainty

Anthropogenic climate change is one of the greatest environmental policy challenges facing the modern world. Consequently, the benefits and costs of climate change mitigation have received a significant attention in the economics of climate change literature in recent years. In particular, stated preference (SP) techniques have been used to estimate the non-market values of climate change mitigation by analysing individuals’ stated behaviour in hypothetical settings. A key challenge to applying SP techniques to evaluate benefits and costs of climate change mitigation is their capacity to account for multidimensional uncertainty. Traditionally, non-market value estimates are obtained under the assumption of complete certainty of both the future scenarios and policy outcomes. Although the certainty assumption helps keep the technical aspects of the valuation exercise relatively simple, it eliminates what may be an essential decision making component. This study explores the role of uncertainty in valuing the benefits of climate change mitigation policies using contingent valuation and choice experiments 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 using the context of the Australian Carbon Pollutions Reduction Scheme. The results show that uncertainty plays an important role in determining the values of climate change mitigation benefits. If this uncertainty remains unaccounted for, there is a potential danger that the estimated economic values will misrepresent social preferences for public policy interventions to manage environmental externalities.