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The Economics of Global Warming


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

The Economics of Global Warming
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
  • Scientists predict that if current trends
    continue, average temperatures might rise by 2 to
    6 degrees Fahrenheit over the next century.

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.

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.

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

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

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
  • Remember Assignment 9!

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
  • 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).

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.

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?

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.

Possible Policies
  • International emissions trading a country could
    pay another country to reduce its CO2 emissions.
    This could significantly reduce global abatement
  • 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!

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
  • The Kyoto Treaty officially took effect when
    Russia ratified it in November 2004.

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.

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?