Convenient or Not, the Climate is Changing
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Convenient or Not, Convenient or Not, the Climate is the Climate is
ChangingChanging
An Economic Conversation An Economic Conversation about Global Climate Changeabout Global Climate Change
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Congrats to Al and the IPCCCongrats to Al and the IPCC
"for their efforts to build up and disseminate greater knowledge about man-made climate change, and to lay the foundations for the measures that are needed to counteract such change"
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What can an economist do?What can an economist do?
1.1. Understand drivers of changeUnderstand drivers of change
2.2. Estimate expected size & Estimate expected size & distribution of benefits & costsdistribution of benefits & costs
3.3. Policy solutions to increase benefits Policy solutions to increase benefits & decrease costs& decrease costs
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IPCC 2007
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IPCC 2007
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IPCC 2007
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Expected benefits?Expected benefits?
Longer growing seasonsLonger growing seasons
More rain => more waterMore rain => more water
Less cold-related deathsLess cold-related deaths
New trade routes as ice melts (Bering New trade routes as ice melts (Bering Strait)Strait)
Swamped by damages?Swamped by damages?
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Expected damages!Expected damages!
Food / water shortages, droughts, floods, hurricanes, wildfires, species extinction, pests, disease, thresholds / tipping points / feedback loops…
Estimates:– 0.26% US GDP Nordhaus (1991) – 2% US GDP Cline (1992)– 5% to 20% of global GDP each year, now & forever (Stern 2006)
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What then do we do?What then do we do?Policy prescriptionsPolicy prescriptions
1.1. Pricing of carbon Pricing of carbon
2.2. Support low-carbon technologiesSupport low-carbon technologies
3.3. Remove barriers to energy Remove barriers to energy efficiencyefficiency
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Pricing of carbon: TaxPricing of carbon: Tax
Want less of something? Tax it!Want less of something? Tax it! Response? Raises the price for Response? Raises the price for
anyone who:anyone who:a) drives a car a) drives a car
b) uses electricity produced with fossil b) uses electricity produced with fossil fuelsfuels
Use this tax to reduce others (payroll Use this tax to reduce others (payroll tax)tax)
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Support low-carbon Support low-carbon technologytechnology
Remove existing market distortions – High subsidies to fossil fuel technologies– Reduces incentive to innovate
Infrastructure– Grid structure high entry barrier
Funding for R & D
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Remove barriers to energy Remove barriers to energy efficiencyefficiency
Regulation policy– Restricting availability of inefficient
technologies (CFC’s)
Information policy– Performance labels– Transparent energy bills– “Smart meters” / peak load pricing
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Tax over other alternativesTax over other alternatives
Increased fuel efficiency? Increased fuel efficiency? – Not free. Passed on to consumers. Not free. Passed on to consumers. – Encourages more driving (now cheaper).Encourages more driving (now cheaper).
Cap and trade ok but no revenueCap and trade ok but no revenue Developed countries could face a higher Developed countries could face a higher
taxtax Taxes collected in developing countries Taxes collected in developing countries
would stay in countrywould stay in country