Chapter 01: Four Economic Questions about Climate Change Flashcards
What are greenhouse gasses?
A compound that traps reflected heat from the earth’s surface and contributes to global warming.
- CO2
- Nitrous oxide (natural and human-made fertilizer)
- Methane gas (oil, gas, rice production, digestive processes of cows and sheep)
- Chlorofluorocarbons (CFCs) (air conditioning
What are the potential consequences of this warming rate?
- Impact on agricultural output
- Natural ecosystems suffer
Heat and wildfire seasons
- Ocean absorbs large quantities of CO2 = ocean acidification (pH level drops and life at the base of the food chain dies off)
3. Rise sea-levels
What are the four economic questions surrounding the economics of the environment?
- How much pollution is too much?
- Is government up to the job?
- How can we do better?
- Can we resolve global issues?
What constitutes as “global warming?”
- A consequence of greenhouse effect
- Gasses (like CO2) are trapped and form a “blanket” of infrared radiation (heat)
What temperature-related effects will global warming have?
Rise temperature:
- Low estimates: 3 degree F by 2100
- High-end estimates (US): 11 degrees F by 2100
On what does future warming depend?
- Scale human emissions of greenhouse gasses
- Positive and negative feedback effects in the climate system (acceleration and deceleration of warming)
How hot will it get?
- Atmospheric CO2 levels in 1880: 280ppm – Now: +410ppm
- Global temperature rise since 1880: 2.0 F (> 1.0 C)
- By 2010: +3 F to +9 F over 1880 levels
- Last Ice Age: Avg. Global temp – 9 F colder than today
What are potential consequences to global warming?
(1) Heatwaves, Droughts and Floods:
- “Extreme weather events” due to more water vapor
- Impacts on agriculture
(2) Major changes in natural ecosystems:
- Pests and diseases
- Accelerated species extinction
(3) Sea Level Rise – +3 ft by 2100:
* Potential for +70 ft of sea level rise over the next few hundred years: depends on how hot it gets
What was the Paris Climate Agreement?
UN-sponsored meeting in France 2015
Voluntary commitments to cut global warming pollution
Based safety (and sustainability) standard: goal preventing “dangerous interference” with climate
US:
- Committed to reduce emissions 30% below 2006 levels by 2030
- Major republican candidates for President (2016) opposed to climate action
Why? (1) Disbelief in climate change and (2) Serous reduction fossil fuel emissions would be too costly
China:
- Capping emissions by 2030 and subsequent reductions
How do economists use efficiency standards to evaluate the question, “How much pollution is too much?”
What challenges arise?
Economist answer question … EFFICIENCY STANDARD: Benefit-Cost Test
Hard to qualify benefits and costs:
Estimate damages avoided 100 years by stabilizing CO2
Effects globally …
(1) agriculture and health
(2) Species extinction and biodiversity
(3) Disproportionate effects – affect poor countries more than richer countries
Developing countries:
- hit hardest tend to be in warmer and drier parts planet
- Lesser financial resources
Hard to place a monetary value on issues:
- Deal with uncertainty?
- Value damage to future generations?
- Measure the value of intangible or “priceless” benefits such as human suffering and death.
- Weigh some countries will lose more compared to others?
What is “business-as-usual”?
Different estimates of “Business-as usual” warming by 2100 (the warming that would occur in the absence of any laws or government policies requiring or subsidizing emission reductions)
What are Nicholas Stern’s “DEEP CUTS” approach to the problem of “How much pollution is too much?”
The former head of the World Bank
Business-as-Usual: Range between 5-11 °F Forecast: Global Warming reduce global output of goods and services from 5 to 20%
Call For:
• Rapid cuts in emissions hold global warming at 4°F
• Require reductions of 25% below 1990 levels by 2050
Since China, India, and Brazil have increase for some time, developed nations need to reduce by 80%
Costs:
- 1% of global GDP per year by 2050
- $540 billion dollars
What is William Nordhaus’s “START SLOW, RAMP UP” approach to the problem of “How much pollution is too much?”
- From Yale University
- 2018 Nobel Prize Economics
Business-as-Usual: Single warming estimate, “best guess” of 5 degrees (consensus 15 years later that there will likely be 8°) Forecast: Impacts closer to 3% of world output
Call For:
- Cuts for 15% below business-as-usual
- Rise 25% by 2050 and 45% by 2100
Emissions increase large amount under business-as-usual: called the increase in global annual emissions by 40% by 2050
Holding emissions down relative to unregulated state – trim warming 5°F to 4°F
Costs:
- Total benefit = $7 trillion
- Costs = $2 trillion
How was Stern and Nordhaus’s answer to the question “How much pollution too much” similar?
Reach similar answers: Holding further global warming to Paris Accord commitment: low end of 4°F
What were the differences between Stern and Nordhaus’s conclusions, based on three different premises?
How much warming will be generated by business-as-usual?
Stern: More worries about consequences positive feedbacks and runaway greenhouse gasses
• Considered range of scenarios
• More warming = higher costs from climate change
Hence, justifies stronger action to reduce emissions
Nordhaus: Stuck with 2005 single “best guess”
• If business-as-usual only leads to 5°F - would not require as much action to cut back to 4°F
Cost of action to slow climate change?
Stern: Deep cuts achievable at relative low cost to global economy (1% GDP)
- Energy efficiency and renewable energy technologies = promise for development and economic growth
- Emission reduction be achieved at a profit (renewable offset fossil fuels)
Nordhaus: NOT believe potential of low-cost alternatives
- Double costs of coal-fired electricity
- Cutting global economic growth
Cost of inaction?
Stern: Saw bigger damages from global warming
- Included more “nonmarket” costs global warming (species extinction, negative impacts on human health)
- the Explicitly incorporated the fact that people in poor countries bear the greatest cost of climate change
- More eight on climate change costs borne by generations
What do advocates for moderate emission cutbacks say?
Mid-range benefit-cost perspective
- “Climate change important not critical well-being humanity”
- Since humans adapt
- As emissions regulated > price CO2 rise and new low-CO2 technologies come on board
- Development new agricultural techniques
What is the ethical debate?
Which standard is “right” depends on how society chooses to measure and weigh costs and benefits of pollution reduction and resource protection
What is the efficiency standard?
Use of benefit-cost analysis
Implicitly endorsing unstated ethical goal: control pollution only if the measurable monetary benefits of doing so are greater than measurable monetary costs
- During early industrialization: benefits more than costs of environmental damage.
- Last 50 years: Benefits outways the costs
Marginal benefit = marginal cost (marginal: additional benefit)
Problems: Fairness?
Effect poor countries more - “rich countries did more damage, we expected to pay more.”
What is the safety standard?
Reduce pollution to “safe” levels, unless costs are prohibitive
What is the sustainability standard?
Protect natural ecosystems from major changes, unless costs prohibitive
Amount carbon necessary to preserve status-quo? (Or the 1990s)
- Amount necessary claw back CO2 to certain time peroid
How does the government need to intervene for climate protection?
Unfettered free-market economy – produces too much pollution
- Hence, government needs to step in
- Economic theory shows why government action is required
Can they make long-term predictions? Determine the outcomes/risks.
Not up to the job
What obstacles does the government face?
- Imperfect Information:
- Benefits are hard to quantify
- Costs hard to gauge accurately
- Many uncertainties
- How to make future prediction?
- Scientific models - not factor in war, famine, other …
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Opportunity for Political Influence:
* Impact of ideology and raw political power in determining policy
What is the view of conservatives and progressives on the role of government and how does “economic thinking” relate?
Conservatives:
- View government intervention as necessary evil
- Argue limited government role
Government actors primarily serve special interests
Suspicious government regulations mandating energy efficiency or supporting clean energy
Progressives:
- Government can promote activist agenda serve general interest public
- Government failure results from unequal (1) distribution of wealth and (2) power in society
- Major negative environmental and economic effects: (1) Energy tax breaks, (2) highway constructions funds, (3) etc.
Role of Economics:
- Governments’ political biases tend to push them in one direction or other
- Economists try to assess costs and benefits objectively
What are the three ways “We can do better?”
- Command-and-Control Regulations
- Incentive-Based Regulations
- Clean Technologies
What is government-and-control regulations?
Governments regulate CO2 emissions by mandating the adoption of particular technologies
- Dominant approach
- Criticized as a “one-size-fits-all” policy, more costly than necessary, and centralized
What are incentive-based regulations?
Firms are provided incentives by the government to reduce emission
- Pollution tax
- Cap-and-trade system
Puts price on pollutions, leave it up to the industry (and consumers) to figure out the best way to cut emissions
Economics (generally) believe in an incentive-based approach
What is the clean technology approach?
Government directly promote the adoption of clean technologies
- Research and development funding*
- Subsidies for “infant industries”*
- Infrastructure investment*
- “Technology forcing” standards*
- Technical assistance*
What are major policy tools? `
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Pollution taxes
- Who pays the tax? Producer or consumer
-
Cap-and-Trade systems
- X amount of tons of emmission - buy them
Same if designed correctly
What is the carbon case and tax requirements to reach 4°F and 5°F?
To achieve 4°F:
A global tax on carbon of $70 a ton today rising to $224 a ton by 2050
To achieve 5°F:
A Global tax on carbon of $25 a ton today rising to $93 a ton by 2050
What are needed to “Resolve Global Issues?”
- Reducing global poverty
- Slowing population growth and unsustainable consumption patterns
- Halting excessive exploitation of natural resources and cutting pollution
- Developing effective international agreements
What are the obstacles that agreements like the Paris Commitment face?
- They are “public goods” and create incentives for “free-riding”
- Low-income countries argue they cannot afford emissions reduction
What are the two impacts of global warming? (Agricultural and Natural ecosystems)
(1) Agricultural impacts
a. Mostly negative
- Forest fires, crops fail not used to heat
b. Could have positive effects too:
- Ex: Canada (could increase the amount of time for farming cycles due to increased warming)
- Economics: View net effect of impact on agricultural impact (not just look at negative)*
(2) Natural ecosystems disrupted
a. Diseases between humans and animals are more likely
- Encroached natural habitat - increases chance of spreading the virus
- Animals encroaching our habitat
- Interaction between animals changes as well
b. Ocean: (Energy in the blanket acidify the ocean)
- Disrupt the pH balance
- Not even thinking about the food chain going down to the floor of the ocean
c. Rising Sea level:
- People on islands affected by sea levels
- Louisiana, Miami beach - undersea levels
- Need to build infrastructure to keep the ocean at bay - consider costs
Why is Net Zero considered “too extreme?”
- Higher prices or lower profits
- Too extreme behavoir - someone bear the costs
How does economics study “goods” and how does it influence carbon policy?
- Economics studies “goods” (good). How to study the bad?
- Evaluate the absense of bad (the removal/reduction of CO2 = good)
Co2 reduction = PUBLIC GOOD
private goods - easy to price. Hard to charge for public goods
How to charge the reduction of Co2
Who pays the burden?
