Applying the Markov model to Carbon Flows

By Gowri Suresh Babu

As actuaries, we are trained to model uncertain futures. Probabilities are one of the most used tools in our actuarial toolkit, and are a very powerful metric. The common example that affects everyone’s daily life is the weather – probabilities are used to make predictions which help us to decide whether or not to take that umbrella!

Climate change has many uncertainties over an extended period. Gowri Suresh Babu considers combining probabilities, a Markov model and the Representative Concentration Pathways (RCPs) to gain useful insight into what RCP the earth may be in at future points of time.