An Economic Perspective on the Challenge of Global Warming

1. Introduction

The great majority of the population in most countries is now aware of global warming and/or some of its effects; the deniers become scarcer as the evidence mounts, discussion proliferates and the older generation drops out of sight. Increasing efforts have been made to address the problem. A very few countries have responded well, at least by the standards applied say a decade ago, and are on route to ending net greenhouse gas emissions within a few decades.

But the experts are now warning that the steps taken so far are not nearly adequate and that a serious crisis is closer than previously thought, perhaps arriving within 20 years (depending on how “crisis” is defined). Public confusion is prevalent because much of the information is hard to interpret, especially that of a more technical (scientific) or economic nature, and because it is mixed together with much misinformation, a good deal of which is deliberate. Accordingly, public beliefs vary widely both on the seriousness of the issue, on humanity’s responsibility for it, and on what can be done at what cost.

Among informed analysts there is little debate about the lead-in to today’s crisis. The upward trend in average global temperature dates from the 1920s, and is closely matched by that of the height of the sea level; both track quite closely the upward trajectory of global carbon emissions, or of all greenhouse gas (GHG) emissions. Until about 25 years ago there was some professional debate as to whether the human race was substantially responsible for the rising temperatures; now there is none, although there remains discussion as to whether other factors have played a secondary role. In summary, the physical processes of global warming are relatively well understood, and have produced the now obvious conclusion that GHG emissions must be reduced sharply and rapidly if the planet is not to suffer the crisis that experts fear.

This essay focusses on the economics of climate change—the economic costs that are resulting and will result from it, and the economic price that will have to be paid to rein it in. These are, for various reasons, among the less understood aspects of the threat. Read more …

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