Assume for simplicity that the global temperature will rise 0.04 C per year with no intervention. The annual global cost for increased temperature is given by the following table: Average temperature then minus temperature now Less than -1.5 C -1.5 C to 1 C 1 to 2C 2 to 2.5C 2.5 to 3.5C Above 3.5 C Annual cost of damages No damage from climate $0.02 trillion per year $0.1 trillion per year $0.5 trillion per year $2.5 trillion per year $4 trillion per year 1. Status Quo - Do nothing. Calculate the present value of the cost of damages for the next 150 years in the case where the global temperature rises 0.04 C per year. 2. Hard Limit. One politician has proposed a reduction in carbon dioxide emissions that will cost the economy $2 trillion per year for the first fifteen years, then $0.5 trillion per year for all following years. The effect of the policy is that the temperature will increase 0.04C per year (like the status quo), but will never rise more than 2.4C above today's temperature. That is, it will rise 2.4C and then stop changing. What is the total present value of cost to the economy plus damages for this policy. 3. Carbon Tax. A carbon tax is proposed which has a cost of $1.2 trillion for every degree Celsius that the average temperature exceeds today's temperature. The impact of the carbon tax is that it immediately reduces the rate of global warming to 0.02 C per year. Again, calculate the total present value of cost to the economy plus damages for this policy. 4. An entrepreneur proposes launching very large sunshades into space to reduce the heating of earth. The cost is $8 trillion, incurred 12 years from today. The effect is to suddenly reduce the earth's temperature by 2C 20 years from today when the shades are installed. The climate still rises by 0.04C every year due to greenhouse gases, including in the 20th year when the shades start up. Calculate the total present value of cost to the economy plus damages for this policy, and determine which of the four policy options should be enacted.