Economic Aspects of Climate Change

Abstract

Although economists have often disagreed on economic aspects of global warming, views, such as those expressed in the Stern Review, which purports global warming as a major economic problem carrying risks of disaster and demanding the use of major resources, are increasingly common. The idea that with development and technological progress, total greenhouse gas (GHG) emissions or emissions per capita would decrease has now been refuted, as a link between increased economic activity and greater emissions has been established. In general, global emissions of CO2 have increased at rates correlated with the annual increase of world GDP (WGDP). Furthermore, the annual increase in atmospheric concentrations of CO2 is correlated with the growth of WGDP. Impacts of climate change and strategies to mitigate them have often been subjected to integrated assessment models (IAMs). For global warming of above 2°C or 3°C, IAMs agree that there will be a reduction in long-term social well-being and a negative impact suffered mostly by low-income regions, but different IAMs strongly disagree on the level of human-induced damage, with estimates ranging from <1% to >10% of WGDP. Direct emissions of GHG related to agriculture are mainly emissions of CH4 and NO2. Indirect emissions of GHG from agriculture include large CO2 emissions from land-use change, i.e., conversion of natural ecosystems into cultivated land. The sum of direct and indirect emissions may represent annually one-fourth of global GHG emissions, with about three-fourths of agricultural GHG emissions coming from low-income countries. Mitigation measures focused on soil carbon sequestration by modifying practices of intensive agriculture and moving toward agroecology or low-carbon agriculture are needed. Permit trading and the implementation of a carbon tax are the major options in the public debate to mitigate climate change. The European Trading Scheme implemented in 2005 has failed to reduce emissions. A carbon tax would reduce emissions by discouraging consumption of “carbon-rich” commodities and, therefore, promoting recycling, reuse, and innovation toward production and consumption of “carbon-poor” commodities, but there have only been some timid steps to implement such a tax in some countries, and there is strong opposition to it.