Leverage Factor (2008)

According to historical data from the European Climate Exchange the price of carbon credits has been quite volatile, but roughly in the range of Eur 10-20/ton for the last few years. At an average exchange rate of 1.4 $/Eur according to Yahoo Finance, this translates into $14-28/ton.

According to the UNDP HDR 2007/2008 global emissions of CO2 equivalent amount to 34b tons/year (2004).

At the margin then to delay the impact of global warming will cost $480b-980b/year.

If nothing is done, guess global warming will significantly impact 1/2 of the world's population in 40 years time, with a 20% drop in quality of life (the IPCC report 20.6.1 reports an effect equivalent to 11-14% of world GDP including health costs due to climate change). The world's population will be 8.9b in 2050 according to Wikipedia World population. This represents a cost of $80t/year 40 years out. Discounting the future at our standard rate this represents a net present cost of $24t/year with global warming.

The benefits of delaying global warming by one year aren't made up of one year without global warming, but instead by a slightly reduced amount of global warming, 1/40th based on the time period until which we crudely estimate global warming occurs, and these benefits are spread out over many years, 20 is our standard capitalization period. This gives us the benefits of delaying global warming of $12t/year of delay.

Comparing the cost of delaying global warming by one year with the benefits of that delay gives us the leverage factor.

Leverage Factor

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