Flexible Balance of Adaptation and Mitigation via Self-Adaptive Multi-Objective Climate Policies

DICE and other cost-benefit integrated assessment models are employed to study economically optimal climate policies and evaluate the economic performance of different emissions pathways. After updates involving the estimation of climate damages and the structure of climate models, DICE provides optimal climate policies in line with the Paris Agreement. Yet, explicit uncertainty and adaptation modelling are still neglected. These two factors require moving away from the traditional perfect-foresight static decision-making framework towards a dynamic one, able to change strategy and react to the realization of uncertainty. In this work, leveraging on the updates proposed by Hansel et al. (2020), we present an updated DICE model that: i) explicitly represents adaptation as temporary and long-term adaptation investments; ii) explicitly describes stochastic, parametric, and structural uncertainty over the physical and socio-economic components of the model; iii) leverages self-adaptive control policies to implement a more realistic decision-making scheme that allows for an adjustment of climate policy when new information about the coupled human-natural system is collected. Results show that self-adaptive policies are able to balance mitigation and adaptation strategies flexibly with respect to the realization of socio-climatic uncertainty. This reduces the discrepancy between economically optimal climate policy and the 2°C temperature target set with the Paris Agreement, which resurfaces when introducing adaptation using traditional static climate policies, also in the presence of uncertainty. Using self-adaptive policies, adaptation costs remain low. Moreover, as adaptation choices are taken based on the scenario eventually unfolding, climate damages are kept at a low level. Consequently, more economic resources can be allocated into mitigation in the short-term resulting in a reduced temperature increase in 2100 for the same level of welfare of static climate policies.