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In-Depth Information
and they rise ever more sharply. In other words, each additional degree
of warming is estimated to be increasingly costly. Tol's estimates sug-
gest that the impact of the fi rst 1°C of warming might be benefi cial
rather than harmful, primarily because of the fertilization effect of CO
2
for agriculture. Above that, however, the impact turns negative. More-
over, the incremental cost of warming at 3°C is approximately twice as
large as that at 2°C. These studies have not incorporated potential tip-
ping points in a reliable manner, which might make the damage curve
turn up even more steeply.
5
A RISK PREMIUM FOR THE HAZARDS IN THE CLIMATE CASINO
The leitmotif that runs through this topic is the unknown dangers
that lie in wait for us as CO
2
and other gases accumulate and the climate
changes. Some of these hazards are well identifi ed, such as the uncer-
tainty about the sensitivity of climate to greenhouse-gas accumulations.
But others appear unexpectedly as scientists study the subject more
deeply. There are continuing open questions about the future of the huge
ice sheets of Greenland and West Antarctica; the impact of aerosols on
global and regional climates; the risks in thawing of vast deposits of
frozen methane and permafrost; changes in the circulation patterns of
the North Atlantic; the potential for runaway warming; and the im-
pacts of ocean carbonization and acidifi cation.
Our economic models have great diffi culties incorporating these
major geophysical changes and their impacts in a reliable manner. It
might be useful to consider how we might insure our planet against the
risks we are encountering in the Climate Casino.
To illustrate the risks inside the Climate Casino, we might think of
the large-scale risks as a kind of planetary roulette. Every year that we
inject more CO
2
into the atmosphere, we spin the planetary roulette
wheel. When the wheel stops, we fi nd out whether we have a favorable
outcome or a particularly damaging one. On the fi rst spin, a ball in a
black pocket produces a slow growth in emissions, while a ball in a red
one produces a rapid growth in emissions. On the next spin, we fi nd
out what will happen when CO
2
concentrations double. Perhaps dou-
bling will increase equilibrium global temperatures by 3°C. But there is
