Economic and climate Change

Economic and climate Change

Economic and climate Change

Introduction

The prospect of global climate change has emerged as a major scientific and public policy issue. Scientific studies indicate that accumulated carbon dioxide (CO2) emitted from the burning of fossil fuels, along with contributions from other human-induced greenhouse gas emissions, is leading to warmer surface temperatures. Possible current-century consequences of this temperature increase include increased frequency of extreme temperature events (such as heat waves), heightened storm intensity, altered precipitation patterns, sea-level rise, and reversal of ocean currents. These changes, in turn, can have significant effects on the functioning of ecosystems, the viability of wildlife, and the well-being of humans.

There is considerable disagreement within and among nations as to what policies, if any, should be introduced to mitigate and perhaps prevent climate change and its various impacts. Despite the disagreements, in recent years we have witnessed the gradual emergence of a range of international and domestic climate change policies, including emissions trading programs, emissions taxes, performance standards, and technology promoting programs(Conrad 2002).

Assessing the Benefits and Costs of Climate Change Mitigation

Climate Change Damages and Mitigation Benefits

the potential consequences of climate change include increased average temperatures, greater frequency of extreme temperature events, altered precipitation patterns, and sea level rise. These biophysical changes affect human welfare. While the distinction is imperfect, economists divide the (often negative) welfare impacts into two main categories: market and non-market damages.

Market damages: As the name suggests, market damages are the welfare impacts stemming from changes in prices or quantities of marketed goods. Changes in productivity typically underlie these impacts. Often researchers have employed climate-dependent production functions to model these changes, specifying wheat production, for example, as a function of climate variables such as temperature and precipitation. In addition to agriculture, this approach has been applied in other industries, including forestry, energy services, water utilities, and coastal flooding from sea level rise.

The production function approach tends to ignore possibilities for substitution across products, which motivates an alternative, hedonic approach.

Applied to agriculture, the hedonic approach aims to embrace a wider range of substitution options, employing cross-section data to examine how geographical, physical, and climate variables are related to the prices of agricultural land. On the assumption that crops are chosen to maximize rents, that rents reflect the productivity of a given plot of land relative to that of marginal land, and that land prices are the present value of land rents, the impact of climate variables on land prices is an indicator of their impact on productivity after crop-substitution is allowed for(Barretto 2004 243-261).

Resources for Future

Non-market damages: Non-market damages include the direct utility loss stemming from a less hospitable climate, as well as welfare costs attributable to lost ecosystem services or lost biodiversity. For these damages, revealed-preference methods face major challenges because non-market impacts may not leave a “behavioral trail” of induced changes in prices or quantities that can be used to determine welfare changes. The loss of biodiversity, for example, does not have any obvious connection with ...