A quantitative minimax regret approach to climate change: Does discounting still matter?

Integrated assessment models have been widely used to inform policymakers about attractive climate response strategies. An important application of integrated assessment models is cost-benefit analysis to determine the optimal level of greenhouse gas emissions mitigation. It has been shown that the recommendations between different studies vary as result of the uncertainties and value judgements involved in cost-benefit analysis of climate change policy. Moreover, many authors, both economists and non-economists,have criticised the way how cost-benefit analyses of climate policy have dealt with low-probability, high-impact events, even though numerous studies have shown the possible importance of such events in cost-benefit analysis.

Using cost–benefit analysis to determine an optimal climate mitigation target is criticised, especially because:

  1. It fails to sufficiently take into account low-probability, high-impact events
  2. Results strongly depend on the discount rate used

One of the alternative suggestions to inform policymakers about the right mitigation target that does take the risks associated with low-probability, high-impact events explicitly into account is the minimax regret criterion. We apply the minimax regret criterion quantitatively using an integrated assessment model with extreme values for climate sensitivity, damage estimates and mitigation costs. The goal is to analyse whether such a method leads to different results compared to standard cost–benefit analysis and whether the results are still sensitive to the discount rate used. We find that the minimax regret approach leads to more stringent and robust climate targets for relatively low discount rates and if both a high climate sensitivity and high damage estimates are assumed. If one of these assumptions does not hold, the difference between the minimax regret approach and standard cost–benefit analysis is much smaller. Therefore, we conclude that the discount rate used can still be of vital importance even when applying a minimax regret approach.


PBL Authors
Andries Hof Detlef van Vuuren Michel den Elzen


Publication title
A quantitative minimax regret approach to climate change: Does discounting still matter?
Publication date
15 November 2010
Publication type
Publication language
Ecological Economics
Volume 70, Issue 1, 15 November 2010, Pages 43-51
Product number