Friday, 11 December 2009

The economics of cutting carbon emmisions

A very good friend of mine does not believe we should cut carbon emissions. His argument is that either there is no climate change or if there is we are too late since we have ruined the world already - we just can't cut emission enough to revert the process. I disagree and have used rational (but very economic thinking) to explain why this can not be so. He does not understand me - so i thought i will but it in an economic blog and you can tell me there is a flaw in my thinking.

We can not calculate the true cost of climate change - its actual repercussion are not revealed to us in full. We do know the worst case scenario though: that within a span of some generations we will totally ruin our environment and our civilization, perhaps even destroying life. This is by far the most extreme case: in this case the cost of climate change is infinite - to quote REM "its the end of the world as we know it". Since the true cost is not revealed to us we have to assign a cost in terms of probabilities. Lets assign a probability of 0.000000000000000001% chance of this extreme scenario to take place - a pretty slim chance.

At the same time we are not sure if we can reverse climate change- maybe my friend is right: we are too late. Yet we do not know this - once again the possibility of reverting climate change is not revealed to us. Lets say that there is a 0.0001% chance of reversing climate change by reducing the emissions of the Kyoto protocols.

Yet the true cost is infinite! thus the 0.0000000001% of infinite is infinitely costly. Since the future is infinite, it is worth spending any amount of money to try and stop it, even if it even has a 0.0001% of success.

Thus the argument is clear to me: the whole point of whether or not climate change is man made and reversible is pointless right now - it will be revealed to us in the Long Run. What is more important is start cutting emissions now, irrespective of costs and of the possibility of success; the cost of not doing so is too high.

Have a nice weekend
Alexander

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