Economic Theory and a Faith-Based Approach to Global Warming

Abstract

This paper is a non-technical examination of some aspects of global warming that are generally neglected in the academic economics literature. The discussion features several basic issues considered by Goodstein (2004) in his short and easily read book, and particularly the serious consequences that might result from a peaking of the global oil output. The same topic is considered to a lesser extent in my energy economics textbook (2000). In addition I have emphasized that, as David Victor (2001) makes clear, the provisions of the Kyoto Protocol are meaningless unless emissions trading is effective. A key argument here is that since exchange-based financial instruments have been unsatisfactory in the electricity markets, to include those associated with the Nordic Electricity Exchange (Nordpool), it could happen that the trading of exchange-based emission permits will also be ineffectual: For example, the emissions trading program broached by the European Union is likely to result in serious problems for the electricity-intensive industries of countries like Sweden, since one result of that program is that a large increase in electricity prices may be unavoidable. Furthermore, it may also be the true that even if there is no man-made component of global warming, the curtailing of greenhouse gas emissions (by e.g. reducing the use of fossil fuels, and increasing energy efficiencies) could result in sizable economic and social gains.