1. Four Economic Questions About Global Warming
Chapter 1
Four Economic Questions About Global Warming

2. The Four Economic Questions
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

3. Introduction Global Warming
Arises from the accumulation of greenhouses gases (e.g. carbon dioxide) and the resulting “carbon blanket” warms the earth
Poses a potentially severe threat to human welfare and natural ecosystems

4. A Hotter Planet
2010 on track to be the hottest year on record.

5. Potential Consequences of Global Warming
Reductions in agricultural output due to changing temperature & rainfall
Major changes in natural ecosystems
Higher disease rates
Accelerated species extinction
Sea Level Rise-- +1 m by 2100
A warming of more than 4 degrees F increases the probability of catastrophic outcomes

6. “How far can it go? The last time the world was three degrees warmer than today – which is what we expect later this century – sea levels were 25m higher. So that is what we can look forward to if we don't act soon…I think sea-level rise is going to be the big issue soon, more even than warming itself…
How long have we got? We have to stabilize emissions of carbon dioxide within a decade, or temperatures will warm by more than one degree. That will be warmer than it has been for half a million years, and many things could become unstoppable.…We don't have much time left.” Dr. James Hansen, Director, NASA Goddard Institute for Space Studies. – The Independent 2/ 17/2006

7. Growing Concern
                                          

8. Global Warming
Scientists agree that global warming is already a reality
The magnitude of this warming will largely depend on positive and negative feedback effects (acceleration and deceleration of warming, respectively)

9. How hot will it get?
Atmospheric CO2 levels in 1880: 280ppm. Now: +390 ppm.
Global temperature rise since 1880: more than 1.5 degree F.
2100: +2.5 to degrees F.
Last Ice Age: Avg. global temp
~ 9 degrees F colder than today.

10. 1. How Much is Too Much?
The efficiency standard relies on formal benefit-cost analysis
The safety standard requires reducing pollution to “safe” levels, unless the costs of doing so are prohibitive
The ecological sustainability standard requires protecting natural ecosystems from major changes, unless the costs of doing so are prohibitive

11. How Much Pollution is too Much? Global Warming
Kyoto global warming treaty requires participating countries to reduce greenhouse emissions to below 1990 levels by It is based on a safety/sustainability goal of preventing dangerous interference with the climate.

12. How Much Pollution is too Much? Global Warming
One application of the efficiency approach, based on formal benefit-cost analysis of global warming calls, for cuts of 10% below the business-as-usual baseline. This is less stringent than Kyoto.

13. An Ethical Debate
The debate over which standard is “right” depends on how society chooses to both measure and weigh the costs and benefits of pollution reduction and resource protection

14. 2. Is Government Up to the Job?
Government action is necessary to reduce pollution in a market economy
Two obstacles to effective government intervention
Imperfect information
Opportunity for political influence

15. The Conservative View
Traditional conservatives view governmental intervention as a necessary evil and argue for a limited government role.
They believe government actors primarily serve special interests

16. The Progressive View
Progressives believe government can promote an activist agenda to serve the general interest of the public
They believe government failures result from unequal distributions of wealth and power in society.

17. The Role of Economics
Economists try to objectively assess the costs and benefits of cleaning up the environment and protecting resources, and to make recommendations to achieve social goals as cost-effectively as possible.

18. 3. How Can We Do Better?
Today, the current method of environmental protection is command-and-control regulation
Government mandates the adoption of certain abatement technologies
Widely criticized as centralized and inflexible, and more costly than necessary

19. Incentive-Based Regulation
Incentive-based regulation approaches set emission reduction targets and leave it to industry to decide how best to comply
The government provides firms with incentives to reduce emissions (e.g. a tax on pollution, or a cap-and-trade system)

20. Promotion of Clean Technologies
Government can also directly promote the adoption of clean technologies through
Research and development funding
Infrastructure investment
Efficiency Standards
Technical Assistance

21. 4. Can We Resolve Global Issues?
Reducing global poverty
Slowing population growth
Halting unsustainable exploitation of natural resources
Developing effective international agreements

22. Global Issues? Global Warming
Agreements like Kyoto face two major obstacles:
They are “public goods” and face incentives for “free-riding” : US & Australia are major polluters, and non-participants.
Poor countries cannot afford emission reductions: developing countries are not participants.

23. Emission Reduction Profile to achieve 450 PPM

24. The Kyoto solution: Marketable Permits
Promoted by US Economists during the Clinton Administration
Caps rich country emissions; provides incentives to develop clean technologies
Funds the transfer of technology to poor countries
Europeans have successfully implemented cap-and-trade as part of their strategy to reach the Kyoto targets

25. On to Part 1:
How Much Pollution is Too Much?