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III. Climate Policy as Climate Insurance
As discussed in the 2013 NRC report, Abrupt Impacts of Climate Change: Anticipating Surprises, the Earth’s climate history suggests the existence of “tipping points,” that is, thresholds beyond which major changes occur that may be self-reinforcing and are likely to be irreversible over relevant time scales. Some of these changes, such as the rapid decline in late-summer Arctic sea ice, are already under way. Others represent potential events for which a tipping point likely exists, but cannot at the present be located. For example, there is new evidence that we might already have crossed a previously unrecognized tipping point concerning the destabilization of the West Antarctic Ice Sheet (Joughin, Smith, and Medley 2014 and Rignot et. al. 2014). A tipping point that is unknown, but thought unlikely to be reached in this century, is the release of methane from thawing Arctic permafrost, which could reinforce the greenhouse effect and spur additional warming and exacerbate climate change. Tipping points can also be crossed by slower climate changes that exceed a threshold at which there is a large-scale change in a biological system, such as the rapid extinction of species. Such impacts could pose such severe consequences for societies and economies that they are sometimes called potential climate catastrophes.

This section examines the implications of these potentially severe outcomes for climate policy, a topic that has been the focus of considerable recent research in the economics literature. The main conclusion emerging from this growing body of work is that the potential of these events to have large-scale impacts has important implications for climate policy. Because the probability of a climate catastrophe increases as GHG emissions rise, missing climate targets because of postponed policies increases risks. Uncertainty about the likelihood and consequences of potential climate catastrophes adds further urgency to implementing policies now to reduce GHG emissions.

Tail Risk Uncertainty and Possible Large-Scale Changes
Were some of these large-scale events to occur, they would have severe consequences and would effectively be irreversible. Because these events are thought to be relatively unlikely, at least in the near term – that is, they occur in the “tail” of the distribution – but would have severe consequences, they are sometimes referred to as “tail risk” events. Because these tail risk events are outside the range of modern human experience, uncertainty surrounds both the science of their dynamics and the economics of their consequences.

Because many of these events are triggered by warming, their likelihood depends in part on the equilibrium climate sensitivity. The IPCC WG I AR5 (2013) provides a likely range of 1.5° to 4.5° Celsius for the equilibrium climate sensitivity. However, considerably larger values cannot be ruled out and are more likely than lower values (i.e. the probability distribution is skewed towards higher values). Combinations of high climate sensitivity and high GHG emissions can result in extremely large end-of-century temperature changes. For example, the IPCC WG III AR5 (2014) cites a high-end projected warming of 7.8° Celsius by 2100, relative to 1900-1950.