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Not only are there nonlinear effects due to the response of the natural environment, there also are important nonlinearities in social dynamics. An important body of knowledge has been accumulated on the reaction of various national economies to the energy price shocks of the 1970s. This analysis suggests that gradual change is likely to be significantly less costly than sudden imposition of a carbon tax or any other policy instrument designed to bring about a rapid change in CO2 emissions (Jorgenson and Wilcoxen, 1991). More generally, the transient effects of policy can be a large fraction of the total impact of attempts to mitigate greenhouse warming, particularly if the economic changes occur on a time scale of a year or shorter.

Thus timing is an important policy consideration. Climate change is a slow process in comparison with the rates of price fluctuations or changes in the business cycle. To the extent that institutions permit slow phasing in of policies such as carbon taxes, gradual changes are likely to be less disruptive economically.

Uncertainty and Choice of Parameters

Uncertainty cannot be ignored in responding to greenhouse warming. Errors of doing too much can be as consequential as errors of doing too little; the error of trying to solve the wrong problem is as likely as the error of failing to act. Above all, errors are inevitable, whether one acts or not, but inevitable errors are also occasions to learn. Therefore policy design that incorporates these lessons of the past helps to increase the resilience of the decision-making system and to foster future learning (Holling, 1978).

An initial step is to choose the range of parameters to be used in the analysis. The case of discount rate has been discussed here at some length, illustrating the social judgments at stake in making these quantitative assumptions. Note that what is needed is a range, rather than a single "best" value. If uncertainty cannot be avoided, one needs to know what would happen under different circumstances, so that serious errors can be forestalled and affordable ones identified.

Therefore, as illustrated in Chapter 29, after using the best information that the Mitigation Panel had available to evaluate the cost-effectiveness and emission potential of the various mitigation options at discount rates ranging from to 3 to 30 percent, the panel used its judgment as shown in Figures 29.1 to 29.3 to provide a range of values for the cost and potential of mitigation. This process culminates in Figure 29.5, which shows two curves: one with the highest cost and lowest emission reduction, the other with the lowest cost and highest emission reduction. This technological costing curve range is compared with the range developed using energy modeling as an accuracy check.