Day Six: Everything You Need to Know About Global Warming in Thirteen Days

"6) Pascal asks the question: What is the expected value of a very small chance of an infinite loss? And, he answers, “Infinite.” In this example, what is the cost of lowering CO2 output and having the long-term effect of increasing CO2 turn out to be nominal? The cost appears to be equal to foregoing, once in your life, six months’ to one year’s global growth – 2% to 4% or less. The benefits, even with no warming, include: energy independence from the Middle East; more jobs, since wind and solar power and increased efficiency are more labor-intensive than another coal-fired power plant; less pollution of streams and air; and an early leadership role for the U.S. in industries that will inevitably become important. Conversely, what are the costs of not acting on prevention when the results turn out to be serious: costs that may dwarf those for prevention; and probable political destabilization from droughts, famine, mass migrations, and even war. And, to Pascal’s real point, what might be the cost at the very extreme end of the distribution: definitely life changing, possibly life threatening."

Not only are the costs very reasonable, but the first half or so of the emissions reductions we need to make here in the US can be done so at a profit.  It's my opinion, in fact, that by the time we make those investments and start reaping the benefits, that technology improvements and overall shifting of the economy to cleaner business will make a lot more of the emissions reductions profitable, too.  And. . .if we take into account the value of some of the other things Mr. Grantham mentions above, like increased domestic employment, reduce dependency on energy in general and foreign energy specifically, and decreased pollution--then the positive returns are even greater.
[This one of a series of daily posts I am drawing from Jeremy Grantham's Summer 2010 Investment letter.  Mr. Grantham is on the Board of Directors of GMO LLC, a global investment firm with over $100 billion under management.  Mr. Grantham takes a large, worldview perspective on investments--with an eye toward long-term trends.  He is right-on about the impact of global warming.]

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