Chapter 01: Four Economic Questions about Climate Change

Question 1

What are greenhouse gasses?

Answer 1

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

Question 2

What are the potential consequences of this warming rate?

Answer 2

1. Impact on agricultural output
2. 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

Question 3

What are the four economic questions surrounding the economics of the environment?

Answer 3

1. How much pollution is too much?
2. Is government up to the job?
3. How can we do better?
4. Can we resolve global issues?

Question 4

What constitutes as “global warming?”

Answer 4

• A consequence of greenhouse effect
• Gasses (like CO2) are trapped and form a “blanket” of infrared radiation (heat)

Question 5

What temperature-related effects will global warming have?

Answer 5

Rise temperature:

• Low estimates: 3 degree F by 2100
• High-end estimates (US): 11 degrees F by 2100

Question 6

On what does future warming depend?

Answer 6

• Scale human emissions of greenhouse gasses
• Positive and negative feedback effects in the climate system (acceleration and deceleration of warming)

Question 7

How hot will it get?

Answer 7

• 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

Question 8

What are potential consequences to global warming?

Answer 8

(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

Question 9

What was the Paris Climate Agreement?

Answer 9

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

Question 10

How do economists use efficiency standards to evaluate the question, “How much pollution is too much?”

What challenges arise?

Answer 10

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?

Question 11

What is “business-as-usual”?

Answer 11

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)

Question 12

What are Nicholas Stern’s “DEEP CUTS” approach to the problem of “How much pollution is too much?”

Answer 12

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

Question 13

What is William Nordhaus’s “START SLOW, RAMP UP” approach to the problem of “How much pollution is too much?”

Answer 13

• 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

Question 14

How was Stern and Nordhaus’s answer to the question “How much pollution too much” similar?

Answer 14

Reach similar answers: Holding further global warming to Paris Accord commitment: low end of 4°F

Question 15

What were the differences between Stern and Nordhaus’s conclusions, based on three different premises?

Answer 15

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

1. Included more “nonmarket” costs global warming (species extinction, negative impacts on human health)
2. the Explicitly incorporated the fact that people in poor countries bear the greatest cost of climate change
3. More eight on climate change costs borne by generations

Question 16

What do advocates for moderate emission cutbacks say?

Answer 16

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

Question 17

What is the ethical debate?

Answer 17

Which standard is “right” depends on how society chooses to measure and weigh costs and benefits of pollution reduction and resource protection

Question 18

What is the efficiency standard?

Answer 18

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.”

Question 19

What is the safety standard?

Answer 19

Reduce pollution to “safe” levels, unless costs are prohibitive

Question 20

What is the sustainability standard?

Answer 20

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

Question 21

How does the government need to intervene for climate protection?

Answer 21

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

Question 22

What obstacles does the government face?

Answer 22

1. 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 …

2. Opportunity for Political Influence:
   * Impact of ideology and raw political power in determining policy

Question 23

What is the view of conservatives and progressives on the role of government and how does “economic thinking” relate?

Answer 23

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

Question 24

What are the three ways “We can do better?”

Answer 24

1. Command-and-Control Regulations
2. Incentive-Based Regulations
3. Clean Technologies

Question 25

What is government-and-control regulations?

Answer 25

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

Question 26

What are incentive-based regulations?

Answer 26

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

Question 27

What is the clean technology approach?

Answer 27

Government directly promote the adoption of clean technologies

• 1. Research and development funding*
• 2. Subsidies for “infant industries”*
• 3. Infrastructure investment*
• 4. “Technology forcing” standards*
• 5. Technical assistance*

Question 28

What are major policy tools? `

Answer 28

1. Pollution taxes
   
   • Who pays the tax? Producer or consumer
2. Cap-and-Trade systems
   
   • X amount of tons of emmission - buy them

Same if designed correctly

Question 29

What is the carbon case and tax requirements to reach 4°F and 5°F?

Answer 29

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

Question 30

What are needed to “Resolve Global Issues?”

Answer 30

1. Reducing global poverty
2. Slowing population growth and unsustainable consumption patterns
3. Halting excessive exploitation of natural resources and cutting pollution
4. Developing effective international agreements

Question 31

What are the obstacles that agreements like the Paris Commitment face?

Answer 31

1. They are “public goods” and create incentives for “free-riding”
2. Low-income countries argue they cannot afford emissions reduction

Question 32

What are the two impacts of global warming? (Agricultural and Natural ecosystems)

Answer 32

(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

Question 33

Why is Net Zero considered “too extreme?”

Answer 33

• Higher prices or lower profits
• Too extreme behavoir - someone bear the costs

Question 34

How does economics study “goods” and how does it influence carbon policy?

Answer 34

• 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?