What We Know and Don't Know about Climate Change, and the Implications for Policy

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There is a lot we know about climate change, but there is also a lot we don’t know. Even if we knew how much CO₂ will be emitted over the coming decades, we wouldn’t know how much temperatures will rise as a result. And even if we could predict the extent of warming that will occur, we can say very little about its impact. I explain that we face considerable uncertainty over climate change and its impact, why there is so much uncertainty, and why we will continue to face uncertainty in the near future. I also explain the policy implications of climate change uncertainty. First, the uncertainty (particularly over the possibility of a catastrophic climate outcome) creates insurance value, which pushes us to earlier and stronger actions to reduce CO₂ emissions. Second, uncertainty interacts with two kinds of irreversibilities: CO₂ remains in the atmosphere for centuries, making the environmental damage from CO₂ emissions irreversible, pushing us to earlier and stronger actions and reducing CO₂ emissions requires sunk costs, that is, irreversible expenditures, which pushes us away from earlier actions. Both irreversibilities are inherent in climate policy, but the net effect is ambiguous.