You don’t know exactly how the future is going to unfold, but you have an idea—you have an expectation—of the probability of different futures. Our goal is to enable you to use that long-term expectation to inform what action you should take now.
An analysis by MIT researchers shows that when electric power companies are planning to invest in new generating facilities but face the possibility of future limits on carbon emissions, they can reduce their long-term economic risk by having at least 20% of the new generation come from non-carbon systems such as solar and wind. Coal or natural gas plants are less expensive initially, but they might have to be shut down prematurely if a carbon cap is put in place in the coming decades. Non-carbon systems are more costly to build, but they’re relatively inexpensive to operate, so companies will continue to run them, even if there’s no restriction on carbon emissions. The researchers’ novel method of incorporating expectations about future emissions policies into the decision-making process identifies an investment strategy that can as much as halve cumulative costs to the US economy, potentially saving more than $100 billion over the long term.