The Economic Value of Climate Science

While demonstrating the economic value of science is challenging, it can be more direct for some Earth observations. For example, suppose a climate science mission can yield decisive information on climate change within a shortened time frame. How much should society be willing to pay for this knowledge today? The US interagency memo on the social cost of carbon (SCC) provides a standard for valuing damages from carbon emissions. We illustrate how value of information (VOI) calculations can be used to monetize the relative value of different climate observations. We follow the SCC, stipulating uncertainty in climate sensitivity, using discount rates of 2.5%, 3% and 5%, and using one of the Integrated Assessment Models sanctioned in SCC (DICE, Nordhaus 2008). We consider three mitigation scenarios: Business as Usual (BAU), a moderate response (DICE Optimal), and a strong response (Stern). To illustrate results, suppose that we would switch from BAU to the Stern emissions path if we learn with 90% confidence that the decadal rate of temperature change reaches or exceeds 0.2 C/decade. Under the SCC assumptions, the year in which this happens, if it happens, depends on uncertain climate sensitivity and on the emissions path. The year in which we become 90% certain also depends on our Earth observations, their accuracy, and their completeness. The resolving power of a climate observing system cannot exceed climate system natural variability. All climate observations add noise to natural variability caused by observing limitations, including calibration errors and space/time sampling uncertainty. The basic concept is that more accurate observations can advance the time for societal decisions. The economic value of the resulting averted damages depends on the discount rate, and the years in which the damages occur. A new climate observation would be economically justified if the net present value (NPV) of the difference in averted damages, relative to the existing systems, exceeds the NPV of the system costs. We present illustrative results comparing the proposed CLARREO advance in satellite absolute calibration for climate change records to an existing system for detecting decadal temperature change and cloud feedback (i.e. climate sensitivity uncertainty). While CLARREO is used as an example, the value should be considered as relevant to an improved climate observing system, since societal decisions are unlikely to be based on one or a few observations. The VOI is found to depend on the required confidence level, the trigger value at which we would abandon the BAU emissions path, the path to which we switch, and the date at which the new system is launched. The VOI of CLARREO in this decision context is the surfeit of NPV of averted damages, relative to the existing system. Over all it is in the order of tens of trillions of US dollars. Among the noteworthy conclusions are (1) switching to either the DICE optimal or Stern emissions paths makes only a modest difference in the VOI of CLARREO, (2) raising the trigger value from 0.2C to 0.3C/decade, increases the VOI of CLARREO, while increasing the total NPV of climate damages, and (3) the choice of discount rate affects the VOI by a factor ~ 5. The results conclude that the economic value of advanced climate observing systems is dramatically larger than their cost, and argues for the continual enhancement of the SCC assessment process.