KENNETH ARROW ON CARBON EMISSIONS AND CLIMATE CHANGE

Kenneth Arrow, a Nobel laureate in Economics, discusses the state and future implications of climate change (link).

The benefits are the avoided damages, including both market damages and non-market damages that account for health and ecological impacts. Following a “business as usual” policy, by 2200, the losses in GNP have an expected value of 13.8%, but with a degree of uncertainty that makes the expected loss equivalent to a certain loss of about 20%. Since the base rate of economic growth (before calculating the climate change effect) was taken to be 1.3% per year, a loss of 20% in the year 2200 amounts to reducing the annual growth rate to 1.2%. In other words, the benefit of mitigating greenhouse gas emissions can be represented as the increase in the annual growth rate from today to 2200 from 1.2% to 1.3%.

Source: Kenneth Arrow, The Case for Mitigating Greenhouse Gas Emissions, Project Syndicate, The Economists' Voice, 2007 (link)