Value of information for climate observing systems

Abstract

The Interagency Working Group Memo on the social cost of carbon is used to compute the value of information (VOI) of climate observing systems. A generic decision context is posited in which society switches from a business as usual (BAU) emissions path to a reduced emissions path upon achieving sufficient confidence that a trigger variable exceeds a stipulated critical value. Using assessments of natural variability and uncertainty of measuring instruments, it is possible to compute the time at which the required confidence would be reached under the current and under a new observing system, if indeed the critical value is reached. Economic damages (worldwide) from carbon emissions are computed with an integrated assessment model. The more accurate observing system acquires the required confidence earlier and switches sooner to the reduced emissions path, thereby avoiding more damages which would otherwise be incurred by BAU emissions. The difference in expected net present value of averted damages under the two observing systems is the VOI of the new observing system relative to the existing system. As illustration, the VOI for the proposed spaceborne CLARREO system relative to current space-borne systems is computed. Depending on details of the decision context, the VOI ranges from 2 to 30 trillion US dollars.

Designing the Climate Observing System of the Future

“…Narrowing the uncertainty in ECS has been used in several VOI articles as an example of how improved scientific knowledge would lead to improved societal decisions and economic outcomes (Cooke et al, 2014(Cooke et al, , 2016Hope, 2014). The Cooke et al articles use a methodology shown schematically in Figure 3.…”

“…The analysis performs a Monte Carlo analysis over the full range of ECS uncertainty in IPCC (2013) report and the final VOI is the expected value over the entire ECS distribution. Cooke et al (2014) note that while the example calculation uses uncertainty in trends in one climate variable, societal decisions will clearly depend on the results of confirmation from a wide range of climate variables, so that their results should be considered as the value of an improved total climate observing system and not just one component of such a system. In that sense the VOI is the value of reaching a given level of uncertainty in climate change observations 15-20 years earlier than with less capable observing approaches.…”

“…The correct discount rate to use remains an issue of research in the economics community and can vary from 1.5% to 5%, with 3% as a common value (SCC2010). A discount rate of 5% would lower the VOI by a factor of 4, while a discount rate of 2.5% increases the VOI by a factor of 2 (Cooke et al, 2014). From an investor (public or private) point of view, discounting is the sum of a risk free rate and compensation for investment risk.…”

“…This was done by varying the magnitude of climate trends required for a decision trigger (e.g., 0.2 ∘ C or 0.3 ∘ C per decade warming), or varying the statistical confidence of the observed anthropogenic climate trend (95% versus 97.5% confidence interval). The sensitivity of the VOI to these assumptions was about 30%, much less than the discount rate or damage function uncertainty (Cooke et al, 2014). The reason for the robustness to the specific societal decision trigger was found to be that the VOI was a differential measure: no matter what information society required, it would ultimately be provided 15-20 years earlier by a more accurate observing system.…”

“…These include the impacts of ocean acidification, species loss, or any international conflicts caused by the stresses of climate change on populations and economies. The Cooke et al (2014) article estimated the impact of unknown societal decision points or "triggers." This was done by varying the magnitude of climate trends required for a decision trigger (e.g., 0.2 ∘ C or 0.3 ∘ C per decade warming), or varying the statistical confidence of the observed anthropogenic climate trend (95% versus 97.5% confidence interval).…”