June 17, 2013
Bob Litterman, member of The Board of Directors for Sustainability at ASU, investigates pricing carbon emissions in the current edition of "Regulation," an expertise-based magazine published by the Cato Institute.
Litterman explores the idiosyncrasies and probabilities of an unknown future that will face huge impacts of today's energy choices. As a solution, many scientists and economists suggest pricing carbon outputs; essentially, the more carbon you put in the atmosphere, the more you get charged.
However, with the uncertainties surrounding climate change and its impacts shrouding proper tax pricing, no one can really predict how much we should spend today to insure tomorrow's future.
"I believe that given that uncertainty, a cautious approach that weighs the cost of catastrophic outcomes above the potential benefits of hedging future economic growth is justified," Litterman writes. "It would be best to get started immediately by pricing carbon emissions no lower, and perhaps well above, a reasonable estimate of the present value of expected future damages, and allow the price to respond appropriately to new information as it becomes known."