Exercises in hedging against extreme consequences of global change and the expected value of information

This paper reports the implications for near-term global change policy of hedging against the extreme costs of low probability-high consequence events, Working with a full range of probabilistically weighted emissions trajectories and assuming complete resolution of uncertainty by the year 2020, the results support modest near-term carbon abatement policy that corresponds with a doubling of the efficient shadow price of carbon emissions, Assuming survey generated subjective likelihoods of extreme events, the efficient hedging shadow price can, for example, be as high as US$18 (US$1990) per tonne of carbon emitted by the year 2020 along the median emissions trajectory and US$28 per tonne along a 95th percentile trajectory. Copyright (C) 1996 Elsevier Science Ltd