Climate scientists and policymakers have long warned of a dangerous threshold: If global temperatures rise more than 1.5 degrees Celsius above preindustrial averages, we risk devastating consequences, including severe flooding, heat waves, and drought. Yet surpassing that grim marker now seems almost inevitable.
One potential way to keep the harms of climate change at bay is geoengineering—deliberate intervention in the Earth’s climate system. The most widely studied form of geoengineering, called Solar Radiation Modification (SRM), involves introducing sunlight-reflecting aerosols into the atmosphere to temporarily cool the planet. Although SRM has never been deployed, it mimics a process that occurs naturally after major volcanic activity. For example, the 1991 eruption of Mount Pinatubo is believed to have cooled the planet by about 0.5 degrees Celsius over the following two years because of the massive quantities of sulfur dioxide it released.
This approach is controversial; even one of the world’s leading geoengineering experts has described it as “a brutally ugly technical fix.” SRM addresses only the symptoms of climate change (increasing temperatures), not the cause (greenhouse gas emissions). It may also carry other, poorly understood risks, including shifts in regional climate and rainfall that could disrupt agriculture.
But compared with other climate solutions, SRM is remarkably cheap: perhaps $10 to $20 billion a year at full scale, against the $1 to $4 trillion a year it would cost to decarbonize the global economy. Nations facing immediate and existential threats from rising global temperatures may run out of time and patience for more elegant solutions and choose to deploy it—and they could embark on this extreme solution with or without international consensus.
“If we were to stop geoengineering, either because of a technical glitch or because of some kind of geopolitical conflict, that would result in a very rapid escalation of temperatures. It is important to consider that risk when evaluating geoengineering.”
The stakes for those nations are measured in lives. The starkest example is the “wet-bulb” temperature, a reading that combines heat and humidity. Once the wet-bulb temperature climbs to around 35°C (95°F), even a healthy person resting in the shade with unlimited water will not survive for many hours. Extreme humid heat has more than doubled in frequency since 1979, and parts of the Persian Gulf and South Asia have already brushed this limit. For a country facing heat capable of killing on a mass scale, the case for cooling the planet immediately can outweigh any objection its neighbors might raise—which is precisely why unilateral deployment is a realistic prospect.
So, whether you are intrigued or appalled by geoengineering, “there’s a very realistic possibility that this happens,” says Yale SOM’s Kelly Shue. And while the economic effects of other aspects of climate change have been widely studied, “geoengineering risk is the elephant in the room,” largely absent from the literature.
In a new working paper, Shue and Samuel Hartzmark of Boston College model the complex macro-financial effects of SRM. Specifically, they wanted to understand how geoengineering would affect the valuation of “brown” fossil fuel firms, “green” firms focused on renewable energy, and firms working on carbon dioxide removal (CDR)—an emerging technology that aims to remove carbon dioxide from the atmosphere. Still in its infancy, carbon removal would require major innovation to work at scale, but it could prove essential to combating climate change.
For the purposes of their model, Hartzmark and Shue analogized geoengineering to other well-studied economic phenomena. For example, they treated geoengineering as a put option, a type of financial instrument that pays out if another asset declines in price, limiting an investor’s overall losses.
At a more abstract level, “a put option is anything that limits how bad an outcome can be,” Shue explains. “Health insurance is a put option, because you can have a bad health event, but then you get an insurance payout.”
In the case of geoengineering, the “asset” is the amount of carbon in the atmosphere, the negative event is the increase in temperature associated with that carbon, and the put option is SRM itself, which limits temperature increases without reducing the amount of atmospheric carbon or ongoing carbon emissions.
Carbon emission occurring alongside SRM creates what the researchers call “ecological debt”: the gap between what temperatures would be without geoengineering and the artificially low temperature brought about through geoengineering. “The only way to pay off this ‘debt’ is by reducing the stock of carbon,” Shue explains. In other words, only carbon removal—not renewable energy, which only prevents the release of additional carbon—can pay down ecological debt.
Hartzmark and Shue also wanted their model to consider an important dimension of geoengineering that is often overlooked: termination risk. Because SRM only masks warming without removing the underlying stock of carbon, “if we were to stop geoengineering, either because of a technical glitch or because of some kind of geopolitical conflict, that would result in a very rapid escalation of temperatures,” Shue says. “Termination could be catastrophic—it is super important to consider that risk when evaluating geoengineering.”
The researchers examined three different scenarios: what would happen to green firms, brown firms, and CDR firms after geoengineering deployment, ignoring termination risk; what would happen to these same firms considering both geoengineering and termination risk (a more realistic scenario); and, as a baseline, what would happen if geoengineering was not deployed at all. They also examined an important claim advanced by geoengineering proponents—that geoengineering keeps devastating harms at bay while buying time for CDR technology to improve.
The outcomes of these scenarios reveal that trying to understand SRM without considering termination risk is deeply misleading. For instance, geoengineering critics often argue that approaches like SRM would reduce the incentive to limit emissions. That’s true, Hartzmark and Shue found—until you take termination risk into account. Absent termination risk, brown firms thrive while green firms struggle, because emitting carbon is no longer socially costly.
But once you consider termination risk, a new pattern emerges: Initially, brown firms do benefit, because emitting more carbon doesn’t increase the global temperature. However, as ecological debt grows and society recognizes the severe danger of stopping geoengineering, renewable energy becomes more appealing, and green firms increase in value.
Similarly, termination risk initially decreases but eventually increases the value of CDR firms, because CDR is the only way to wipe out the ecological debt that makes termination risk so dangerous. However, the researchers found, this dynamic takes time to emerge. The model predicts that the initial drop in the value of CDR firms caused by geoengineering would also weaken incentives to innovate, delaying the expected arrival of breakthrough carbon-removal technology.
This delay reflects a deeper incentive problem for carbon removal. Because carbon-removal firms are ultimately paid through the price of carbon—which reflects how dangerous the remaining carbon is—their reward shrinks precisely as they succeed. Every ton removed makes the remaining carbon a little less dangerous, so the carbon price can fall below the cost of removal before the job is finished. Would-be innovators anticipate these declining returns and underinvest today. Hartzmark and Shue show that an advance commitment contract to pay a set price for carbon removal can solve this problem. The idea echoes the “advance market commitments” used to speed vaccine development: by guaranteeing a buyer at a set price before the product exists, they give innovators a reason to invest.
Hartzmark and Shue also modeled welfare—overall well-being for society as a whole—comparing a world in which geoengineering exists (along with its termination risk) to one in which the technology never becomes available. Under their baseline assumptions, the world with geoengineering comes out slightly ahead: a breakthrough in green energy or carbon removal may well arrive before any aerosols are released, and once deployment begins, the cap it places on temperatures buys decades of avoided climate damage before much termination risk builds up. But the advantage is thin and depends on several uncertain factors: how much time deployment buys before a breakthrough arrives, how likely a breakthrough is to arrive without geoengineering, how much termination risk accumulates while the program runs, and how much deployment dulls the incentive to develop the very technologies that pay off ecological debt. The balance tips the other way—leaving society worse off with geoengineering—if deployment begins only after carbon has accumulated to dangerous levels, or if the program is likely to be interrupted while breakthroughs remain far off.
Taken together, these results offer few easy answers about whether geoengineering is a prudent path or not. To Shue, that’s not the point: “We are very much not advocating this as a policy stance,” she explains. The world is heating up, and “given the likelihood that SRM could happen, it’s important to study the economic implications.”
“The Yale School of Management is the graduate business school of Yale University, a private research university in New Haven, Connecticut.”
Please visit the firm link to site
