Economy of Global Climate Change

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The Economics of Global Climate Change
By Jonathan M. Harris and Brian Roach

Cost-Benefit Studies of Global Climate Change
Without policy intervention, carbon emissions can be expected to continue to rise approximately as projected in Figure 2. Aggressive and immediate policy action would be required first to stabilize and then to reduce total CO2emissions in the coming decades. In performing a cost-benefit analysis, we must weigh the consequences of the projected increase in carbon emissions versus the costs of current policy actions to stabilize or even reduce CO2emissions. Strong policy action to prevent climate change will bring benefits equal to the value of damages that are avoided5. These benefits must be compared to the costs of taking action. Various economic studies have attempted to estimate these benefits and costs. The results of one such study for the U.S. economy are shown in Table 2. The study is based on an estimated doubling of CO2 over pre-industrial levels. When the monetized costs are added up, the total annual U.S. damages are estimated at approximately $60 billion (1990 dollars). This is about 1% of U.S. GNP. Although different economic studies come up with different estimates, most of them are in the range of 1-2% GNP. Cost estimates for larger temperature change over the longer term rise to around 5% of GNP (the far-right column of Table 2). However, that there are also some “Xs” and “Ys” in the totals – unknown quantities that cannot easily be measured. The damages from species extinctions, for example, are difficult to estimate in dollar terms: the estimates used here show a cost of at least $4 billion in the short term and $16 billion in the long term, with additional unknown costs in both the short and long term. What is the greenhouse effect?

The sun’s rays travel through a greenhouse’s glass to warm the air inside, but the glass acts as a barrier to the escape of heat. Thus plants that require warm weather can be grown in cold climates. The global greenhouse effect, through which the earth’s atmosphere acts like the glass in a greenhouse, was first described by French scientist Jean Baptiste Fourier in 1824. Clouds, water vapor, and the natural greenhouse gases carbon dioxide (CO2), methane, nitrous oxide, and ozone allow inbound solar radiation to pass through, but serve as a barrier to outgoing infrared heat. This creates the natural greenhouse effect, which makes the planet suitable for life. Without it, the average surface temperature on the planet would average around -18° C (0oF), instead of approximately 15°C (60o F). The possibility of an enhanced or human-induced greenhouse effect was introduced one hundred years ago by the Swedish scientist Svante Arrhenius. He hypothesized that the increased burning of coal would lead to an increased concentration of carbon dioxide in the atmosphere, and would warm the earth. Since Arrhenius’ time greenhouse gas emissions have grown dramatically. Carbon dioxide concentrations in the atmosphere have increased by about 35% over pre-industrial levels. In addition to increased burning of fossil fuels such as coal, oil and natural gas, synthetic chemical substances such as chlorofluorocarbons (CFCs) as well as methane and nitrous oxide emissions from agriculture and industry contribute to the greenhouse effect. Scientists have developed complex computer models that estimate the effect of current and future greenhouse gas emissions on the global climate. While considerable uncertainty remains in these models, virtually all scientists agree that the human-induced greenhouse effect poses a significant threat to the global ecosystem. The global average temperature has increased by about 0.7°C (1.3°F) during the 20th century. The Intergovernmental Panel on Climate Change (IPCC) concluded in 2001 that humans are already having a discernable impact on the global climate: “most of the observed warming over the last 50 years is likely to have been due to...
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