12/19/20191ECONOMICANALYSIS of CLIMATE CHANGEEnvironmental EconomicsLecture 8•Climate change is the most daunting issue the environmental community has ever faced: •There are huge uncertainties associated with its impact, •requires intense international cooperation, & •needs a major transitionin almost all aspects of the global economy.•Addressing climate change will require reorienting our entire energy supply & making major improvements in efficiency throughout vast sectors of the economy.•It is a much more complex & demanding task than the problem of ozone depletion.
12/19/20192•It is also compoundedbecause the potential effects of climate change are more uncertainthan the increased risk of skin cancer linked to the destruction of the ozone layer. •With greenhouse gases already in the atmosphere, some amount of global warming is almost assured (happening already). •The issue before us is at what concentrations could we significantly reduce the probability of severe & catastrophicclimate change to acceptablelevels.•We are faced with a trade-off: •Every incremental reduction in greenhouse gas emissions reduces the probabilityof catastrophic change, but requires greater societal transformation& costly policies(in dollars & in political capital).•With all problems facing the world, such as global recession, infectious diseases, proliferation of weapons of mass destruction, terrorism & global poverty, it takes a courageous & determined leader to put climate change at or near the top of the list.
12/19/20193•While focusing on one problem should not automatically detract us from another, the environment still ranks relatively lowin the public consciousness. •So significant political leadership is required to mobilizethe publicfor serious action.•According to IPCC’s report, to lower CO2concentration to 350 ppm, in order to prevent catastrophic climate change, an 85% reduction in global greenhouse gas emissions is required with respect to 2000 levels.•However, the world economy is expected to grow at an average rate of 2.5 to 3.5% over the coming decades, so these reductions will be much more difficult to achieve. •If left unchecked, greenhouse gas emissions would grow by several hundred percent by midcentury.•The two main types of policies that are currently being discussed in academic & government circles to address climate change include:•an international carbon (or greenhouse gas) tax, •an international greenhouse gas cap & trade system.
12/19/20194•The critical component of both policies is to put a significant price on greenhouse gas emissions that increases over time: •The taxdoes so directly, while the cap & trade does so indirectlyby putting limits on greenhouse gas emissions.•What the price of carbon dioxide (or other greenhouse gas equivalents) pollution should be to have businesses & individuals make the changes necessary to reduce greenhouse gases by 85% by 2050 (the IPCC’s goal)?