Abstract:

There is a growing consensus that continued increases in greenhouse gas (GHG) emissions would lead to significant increases in global mean temperature over the next 50 to 100 years, which could have substantial adverse consequences. But there is considerable uncertainty over just how much temperatures would indeed increase under a "business as usual" scenario, and how large the consequences would be. I focus on the nature of the uncertainty, and ask whether low-probability but very adverse outcomes might justify the immediate imposition of a stringent abatement policy. I use an outcome distribution fitted to Weitzman's summary of scientific studies in the 2007 IPCC Report, and examine how optimal abatement policies depend on the skewness of the distribution. I show how society's "willingness to pay" for emission reductions can be decomposed into mean, variance, and skewness components.