What A Cashless Society Could Mean For The Future

Michael Greenstone, who is now director of the Becker Friedman Institute at the University of Chicago and of the Energy Policy Institute there, as well as a contributor to The Upshot, was part of those efforts.

“We’ve divided the world into 25,000 regions and married that with very precise geographic predictions on how the local climate will change,” Mr. Greenstone said. “Just having the raw computing power to be able to analyze this at a more disaggregated level is a big part of it.”

But even once you have an estimate of the cost of a hotter climate in future decades, some seemingly small assumptions can drastically alter the social cost of carbon today.

Finance uses something called the discount rate to compare future value with present value. What would the promise of a $1,000 payment 10 years from now be worth to you today? Certainly something less than $1,000 — but how much less would depend on what rate you use.

Likewise, the cost of carbon emissions varies greatly depending on how you value the well-being of people in future decades — many not born yet, and who may benefit from technologies and wealth we cannot imagine — versus our well-being today.

The magic of compounding means that the exact rate matters a great deal when looking at things far in the future. It’s essentially the inverse of observing that a $1,000 investment that compounds at 3 percent a year will be worth about $4,400 in 50 years, whereas one that grows 7 percent per year will be worth more than $29,000.

In the Obama administration’s analysis, using a 5 percent discount rate — which would put comparatively little weight on the well-being of future generations — would imply a social cost of $12 (in 2007 dollars) for emitting one metric ton of carbon dioxide. A metric ton is about what would be released as a car burns 113 gallons of gasoline. A 2.5 percent rate would imply a cost of $62, which adds up to hundreds of billions of dollars a year in society-wide costs at recent rates of emissions.

Source : https://www.nytimes.com/2019/01/17/upshot/how-to-think-about-the-costs-of-climate-change.html

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