There are plenty of books about climate change. How is this one different?
Gernot Wagner: Most books are about what we know. Ours zeroes in on what we don't. The most interesting—and potentially frightening—aspects of climate change are in the "unknown unknowns," so to speak. It's common to think a lot about this sort of uncertainty when it comes to financial markets, but less so when dealing with global warming.
Martin L. Weitzman: There's this long-standing belief in economics—and in the public characterization of the economic debate—that a balanced approach requires us to go slow: for example, start with a low carbon price that ratchets up over time.
That's fine as far as it goes, but it's based on what we know. What we don't know—the all-important tail risks—means that what's now perceived as the middle-of-the-road approach may well be on the conservative end of the spectrum.
So, what do we know?
MLW: We know that climate change is about risk management—on a planetary scale, with possibly catastrophic consequences. It's among the most difficult public policy problems the world has ever had to deal with. Doing something about it means tackling issues that go to the core of what drives—powers—the modern economy.
GW: We also know enough to act now. Whether the correct price of a ton of carbon dioxide is $40 or ten times as much is largely beside the point. The world subsidizes fossil fuels to the tune of $500 billion per year. That makes for an average carbon dioxide price of negative $15 per ton. So, step one: let's get the sign right.
I'm sold. What can I do?
GW: Scream. Cope. And, as you may expect to hear from two economists: Profit. Let's make sure our politicians hear us loud and clear to put the right policies in place. Meanwhile, let's also prepare for what's in store . . .
MLW: . . . and let's guide investment decisions in a way to steer clear from the current high-carbon, low-efficiency trajectory and instead make the low-carbon, high-efficiency one the profitable path.
Economics—misguided economics—is the big problem. It's also the solution. Avoiding an eventual climate shock is all about correcting misguided market forces.
GW: This isn't about drawing up a battle between capitalism and the climate. It's about using the tools we have to get a handle on our uncertain future. We know what to do. Let's get to work.