Convenient or Not, Convenient or Not, the Climate is the Climate is

ChangingChanging

An Economic Conversation An Economic Conversation about Global Climate Changeabout Global Climate Change

Congrats to Al and the IPCCCongrats to Al and the IPCC

"for their efforts to build up and disseminate greater knowledge about man-made climate change, and to lay the foundations for the measures that are needed to counteract such change"

What can an economist do?What can an economist do?

1.1. Understand drivers of changeUnderstand drivers of change

2.2. Estimate expected size & Estimate expected size & distribution of benefits & costsdistribution of benefits & costs

3.3. Policy solutions to increase benefits Policy solutions to increase benefits & decrease costs& decrease costs

IPCC 2007

IPCC 2007

IPCC 2007

Expected benefits?Expected benefits?

Longer growing seasonsLonger growing seasons

More rain => more waterMore rain => more water

Less cold-related deathsLess cold-related deaths

New trade routes as ice melts (Bering New trade routes as ice melts (Bering Strait)Strait)

Swamped by damages?Swamped by damages?

Expected damages!Expected damages!

Food / water shortages, droughts, floods, hurricanes, wildfires, species extinction, pests, disease, thresholds / tipping points / feedback loops…

Estimates:– 0.26% US GDP Nordhaus (1991) – 2% US GDP Cline (1992)– 5% to 20% of global GDP each year, now & forever (Stern 2006)

What then do we do?What then do we do?Policy prescriptionsPolicy prescriptions

1.1. Pricing of carbon Pricing of carbon

2.2. Support low-carbon technologiesSupport low-carbon technologies

3.3. Remove barriers to energy Remove barriers to energy efficiencyefficiency

Pricing of carbon: TaxPricing of carbon: Tax

Want less of something? Tax it!Want less of something? Tax it! Response? Raises the price for Response? Raises the price for

anyone who:anyone who:a) drives a car a) drives a car

b) uses electricity produced with fossil b) uses electricity produced with fossil fuelsfuels

Use this tax to reduce others (payroll Use this tax to reduce others (payroll tax)tax)

Support low-carbon Support low-carbon technologytechnology

Remove existing market distortions – High subsidies to fossil fuel technologies– Reduces incentive to innovate

Infrastructure– Grid structure high entry barrier

Funding for R & D

Remove barriers to energy Remove barriers to energy efficiencyefficiency

Regulation policy– Restricting availability of inefficient

technologies (CFC’s)

Information policy– Performance labels– Transparent energy bills– “Smart meters” / peak load pricing

Tax over other alternativesTax over other alternatives

Increased fuel efficiency? Increased fuel efficiency? – Not free. Passed on to consumers. Not free. Passed on to consumers. – Encourages more driving (now cheaper).Encourages more driving (now cheaper).

Cap and trade ok but no revenueCap and trade ok but no revenue Developed countries could face a higher Developed countries could face a higher

taxtax Taxes collected in developing countries Taxes collected in developing countries

would stay in countrywould stay in country