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We investigate the importance of OwhatO-flexibility on top of OwhereO- and OwhenO-flexibility for alternative emission control schemes that prescribe long-term temperature targets and eventually impose additional constraints on the rate of temperature change. We find that OwhatO-flexibility substantially reduces the economic adjustment costs. When comparing policies that simply involve long-term temperature targets against more stringent strategies with constraints on the rate of temperature increase, it turns out that the latter involve much higher costs. The cost difference may be interpreted as additional insurance payments if climate damages should not only depend on absolute temperature change but also on the rate of temperature change.

Efficiency Gains from 'What' - Flexibility in Climate Policy - an Integrated Cge Assessment