L7 Economics of Climate Change Flashcards
What we call greenhouse effect?
A natural process that warms the Earth’s surface. When the Sun’s energy reaches the Earth’s atmosphere, some of it is reflected back to space and some is absorbed and re-radiated by greenhouse gases. The absorbed energy warms the atmosphere and the surface of the Earth. This process maintains the Earth’s temperature at around 33 degrees Celsius warmer than it would otherwise be, allowing life on Earth to exist.
What are the risks of global warming?
Rising sea levels, more hurricanes, destruction of natural habitats, acidification of oceans leading to destruction of coral reefs and plankton, infectious diseases of hitherto unknown diseases, massive shortages of water , desertification
Which elements are disrupted from global warming?
Food, water, ecosystems, extreme weather events and risk of abrupt and major irreversible changes.
What do we call carbon countdown?
We call it when carbon emissions stay the same.
What does the golden policy of carbon pricing encourage?
- Encourages substitution from carbon-intensive fossil fuel to less carbon-intensive fossil fuel.
- Encourages substitution away from fossil fuel to renewables and brings forward the carbon-free era.
- Encourages R&D into clean alternatives for energy-saving technology
What policies aim to curb demand for fossil fuel and what alternatives for fossil fue they offer?
Policies = higher petrol taxes, homes insulation, lighter cars…
Alternatives to fossil fuel = - Nuclear (electricity generation and hydro power)
- Green energy sources: pellet heating, biodiesel, heat pumps, solar, geothermal…
- Efficient combustion: common-rail Diesel engines, optimized power plants…
In which consists pricing carbon subject to a safe carbon budget constraint?
Let the cost of emitting one ton of carbon today be r. Then not emitting one tC today saves r, which could be invested and thus a get a return or interest of r. To be indifferent between not emitting today and emitting tomorrow requires that the carbon price tomorrow equals (1+r) r. This is like the Hotelling arbitrage principle.
Hence, the optimal price of emitting a ton of carbon must rise at a rate equal to the rate of interest.
In which consists pricing carbon to maximize welfare net of global warming damages?
The social cost of carbon (SCC) is the present discounted value of all future marginal global warming damages of emitting one extra ton of carbon.
Maximising welfare taking account of global warming damages requires that the price of carbon must be set to the SCC.
If damages are proportional to GDP, the SCC and thus the optimal carbon price must rise at the same rate of growth as GDP.
This is slower than rising at the rate of interest.
The SCC is very sensitive to the social rate of discount: Nordhaus versus Stern.
The SCC is higher for rich than for poor countries.
What does carbon cycle suppose?
20% of carbon emissions stays up forever in the atmosphere and the remaining part has a mean lifetime of 300 years.
In what consists the simple rule for SCC (Social carbon cost)?
where the appropriate rate of discount to discount damages follows from the Keynes-Ramsey rule:
•Hence, a lower weight to welfare of future generations, a bigger aversion to intergenerational inequality aversion, and richer future generations curb desire to make sacrifices to curb future global warming and depresses the optimal price of carbon.
•Since climate damages are proportional to world GDP, the global carbon tax is proportional to world GDP too.
In what depends welfare-maximizing price of carbon?
Depends on geophysics, ethics and economics, but not on cost on fossil fuel in aggregate output or the structure of aggregate supply .
Whats is the cause of over half of all methane emissions?
Anthropogenic ones (conversion of forests into agriculture, rice agriculture, waste water treatment, biomass burning, natural gas burning…
when it comes to climate policies, we find lot of obstacles. One of those is the time scale. Why?
Because climate risks are very, very far in the future.
A low discount rate is needed for discounting benefits say 100 years from now.
Another obstacle we find when it comes to climate policies is the uncertainty. Why we would say that?
It is a big ask from current generations to make sacrifices to curb global warming for future,
(pension-climate deals?)
What green paradox consists in?
Politicians: procrastinate and prefer carrot to the stick.Europe has focused on renewable energy subsidies, not carbon pricing.Anticipation of green policies: sheiks pump oil faster to avoid capital losses, which accelerates global warming.Welfare goes up if price elasticity of demand is low, of supply is high, and ecological discount rate is high.
