Working Paper

Real Option Value for New Measurements of Cloud Radiative Forcing

May 6, 2016 | Roger M. Cooke, Alexander Golub, Bruce A. Wielicki, Martin G. Mlynczak, David F. Young, Rosemary R. Baize


An enhanced Earth Observing System with higher accuracy across a wide range of climate change observations would be a very effective societal investment, reducing uncertainty in future climate change sensitivity estimates.


One of the critical uncertainties in estimating future climate change is climate sensitivity. Climate sensitivity uncertainty is driven by uncertain low cloud feedback in the climate system. Low cloud feedback is very closely related to decadal changes in the effect of low clouds on reflected solar radiation or shortwave cloud radiative forcing. This study computes the real option value of higher accuracy cloud radiative forcing measurements using the Inter Agency Memo on the Social Cost of Carbon, thereby extending a previous study of real option value based on observing the decadal rate of temperature rise. The real option values for measuring cloud radiative forcing are roughly double that of measuring decadal temperature rise. This reflects the fact that triggering on temperature generally occurs earlier with less pronounced differences between the new and existing observing systems.