POLICY RESEARCH WORKING PAPER10743How Delayed Learning about ClimateUncertainty Impacts DecarbonizationInvestment StrategiesAdam Michael BauerFlorent MclsaacStephane HallegatteWORLD BANK GROUPMacroeconomics,Trade and Investment Global PracticeClimate Change GroupMarch 2024POLICY RESEARCH WORKING PAPER 10743AbstractThe Paris Agreement established that global warmingremaining carbon budget impacts investment in three ways:should be limited to "well below"2C and encouraged(i)the cost of policy increases,especially when adjustmentefforts to limit warming to 1.5C.Achieving this goal pres-costs are present;(ii)abatement investment is front-loadedents a significant challenge,especially given the presence ofrelative to the certainty policy;and (iii)the sectoral alloca-(i)cconomic inertia and adjustment costs,which penalizetion of investment changes to favor declining investmenta swift transition away from fossil fuels,and (ii)climatepathways rather than bell-shaped paths.The latter effectuncertainty that,for example,hinders the ability to pre-is especially pronounced in hard-to-abate sectors,such asdict the amount of emissions that can be emitted before aheavy industry.Each of the effects can be traced back to thegiven temperature target is passed,which is often referredto as the remaining carbon budget.This paper presents aremaining carbon budget is learned later in the century.Themodding framework that explores optimal decarbonizationpaper highlights how dimate uncertainty and adjustmentinvestment strategy when both delayed learning about thecosts combined result in a more aggressive least-cost strategyremaining carbon budget and adjustment costs are pres-for decarbonization investment.cnt.The findings show that delaying learning about theThis paper is a product of the Macroeconomics,Trade and Investment Global Practice and the Climate Change Group.It ispart of a larger effort by the World Bank to provide open access to its research and make a contribution to development policydiscussions around the world.Policy Research Working Papers are also posted on the Web at http://www.wordbank.org/prwp.The authors may be contacted at adammb4@illinois.edu,fmcisaac@worldbankorg,and shallegatte@worldbank.org.Produced by the Research Support Team