QUESTION 2

The government is contemplating to implement actions to prevent climate change . If no action is taken then climate change will happen with a probability of 96%. There is a probability of 4% that there will be no climate change . We will not be able to tell if there is climate change until 72years from today .

In 72 years , we will know if there is climate change but it would be too late to do anything about it if climate change takes place . If there is climate change then the world will suffer a loss of $ 32,685 a year forever starting in year 72+1.

Scientists say that we can prevent climate change for sure by reducing emissions of CO2 in year 11. The cost of reducing emissions is $445 every year forever starting in year 11+1 .

Assuming the discount rate is , what is the expected value doing nothing against climate change minus the expected value of preventing climate change ? ( hint : this number can be positive or negative )