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The Economics of Global Warming

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The Economics of Global Warming Global Warming: The Problem Greenhouse gases (including carbon dioxide (CO2), methane, and chlorofluorocarbons (CFCs)) trap heat near ... – PowerPoint PPT presentation

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Title: The Economics of Global Warming


1
The Economics of Global Warming
2
Global Warming The Problem
  • Greenhouse gases (including carbon dioxide (CO2),
    methane, and chlorofluorocarbons (CFCs)) trap
    heat near the earths surface, thus contributing
    to global warming.
  • Evidence CO2 concentration has increased by
    about 27 since the Industrial Revolution and is
    now increasing by about 0.5 per year.
    Concentrations of methane and NO2 also are
    rising.
  • Scientists predict that if current trends
    continue, average temperatures might rise by 2 to
    6 degrees Fahrenheit over the next century.

3
Global Warming The Problem
  • Global warming probably involves a lag of at
    least a few decades, so it is hard to predict the
    effects of todays greenhouse gas emissions.
  • Greenhouse gases are long-lived, and they
    accumulate in the atmosphere.

4
Global Warming The Problem
  • Of greenhouse gas emissions due to human
    activity, about 85 are caused by burning of
    fossil fuels, and about 12 are due to
    deforestation and other changes in land use.
  • The U.S. is responsible for about 20 of CO2
    emissions and about 10 to 15 of emissions of
    other gases.

5
Global Warming The Problem
  • total CO2 emissions population GDP/population
    energy/GDP CO2/energy

6
The Economic Impact of Global Warming
  • Many tend to assume that we cannot allow any
    warming. Does this make sense?
  • We have to weigh the costs (and benefits?) of
    warming against the costs of preventing it.
  • The economic impact of global warming would
    depend on accompanying changes in precipitation,
    ocean currents, the sea level, the spread of
    diseases, and other factors that are hard to
    predict.

7
The Economic Impact of Global Warming
  • Estimates by economists suggest that a doubling
    of the CO2 concentration would cause damages
    equal to about 1 to 2 of total output.
  • Changes in international trade patterns and other
    market responses might mitigate some of the
    damages.
  • Remember Assignment 9!

8
Developing Countries vs. Developed Countries
  • The effects of global warming would differ
    between countries some (such as Russia, Canada,
    and perhaps the U.S.) might gain, while others
    (particularly developing countries) would be
    hurt.
  • Economies in developed countries have little
    exposure to climate, so they would be less
    affected by global warming than economies in
    developing countries (where agriculture is still
    very important).

9
Developing Countries vs. Developed Countries
  • Developed countries have more resources to deal
    with the problem, but most of the growth in
    greenhouse gas emissions is expected to come in
    developing countries.
  • Many economists believe that the most
    cost-effective approach would be to improve the
    energy-efficiency of developing nations, since
    they have not yet invested much in modern
    production techniques.

10
Possible Policies
  • Global warming can be prevented or slowed if CO2
    emissions are reduced.
  • What can a country do?
  • caps on emissions
  • transferable emissions permits
  • tax incentives for emission reductions
  • funding for research to reduce emissions
  • tax breaks for fuel-efficient cars
  • greater reliance on solar and wind power
  • reforestation
  • nuclear power?

11
Possible Policies
  • A carbon tax would provide disincentives for
    the use of fossil fuels.
  • Governments could also impose taxes on activities
    that generate other greenhouse gases.

12
Possible Policies
  • International emissions trading a country could
    pay another country to reduce its CO2 emissions.
    This could significantly reduce global abatement
    costs.
  • Studies suggest that if a policy designed to
    limit greenhouse gas emissions to their 1990
    level is phased in gradually over the next forty
    years or so, economic growth rates would be
    affected only slightly.
  • However, even this slight impact would add up to
    trillions of dollars in sacrifices!

13
The Kyoto Protocol (1997)
  • Under the Kyoto Treaty, industrial nations agreed
    to limit their greenhouse gas emissions to 5.2
    below 1990 levels.
  • This would be 30 below levels projected for
    2010.
  • The Kyoto Treaty officially took effect when
    Russia ratified it in November 2004.

14
The Kyoto Protocol
  • No requirements were imposed on newly
    industrialized countries such as China.
  • In the U.S., the Bush administration and many in
    Congress are opposed to the treaty.
  • The U.S. would have been required to cut
    emissions to 7 below 1990 levels by the years
    2008 through 2012.

15
The Kyoto Protocol
  • In the 1990s the U.S. persuaded other nations to
    agree to allow various forms of emissions trading
    in the agreement.
  • A developed country can earn credits by cutting
    its emissions more than required, and then it can
    sell the credits to another country.
  • A developed country can meet part of its
    obligations by entering into a joint program with
    a developing country to reduce its emissions.
  • The Clean Development Mechanism companies in
    developed countries can earn emission-reduction
    credits if they invest in projects (such as
    modern, fuel-efficient power plants) in
    developing countries.
  • Cost-effectiveness? Hot spots?
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