Economics and Global Warming

A good example of the central role that economics plays in policy debates is the debate
about global warming. Almost all scientists are now convinced that global warming is
occurring and that human activity such as the burning of fossil fuel is the cause. The
policy question is what to do about it. To answer that question, most governments have
turned to economists. The first part of the question that economists have considered is
whether it is worth doing anything, and in a well-publicized report commissioned by the
British government, economist Nicholas Stern argued that, based upon his cost/benefit
analysis, yes it is worth doing something. The reason: because the costs of not doing
anything would likely reduce output by 20 percent in the future, and that those costs
(appropriately weighted for when they occur) are less than the benefits of policies that
can be implemented. The second part of the question is: what policies to implement? The
policies he recommended were policies that changed incentives—specifically, policies
that raised the costs of emitting greenhouse gases and decreased the cost of other forms
of production. Those recommended policies reflected the economist’s opportunity cost
framework in action: if you want to change the result, change the incentives that
individuals face. There is considerable debate about Stern’s analysis—both with the way
he conducted the cost/benefit analysis and with his policy recommendations. Such
debates are inevitable when the data are incomplete and numerous judgments need to be
made. I suspect that these debates will continue over the coming years with economists
on various sides of the debate. Economists are generally not united in their views about
complicated policy issues since they differ in their normative views and in their
assessment of the problem and of what politically can be achieved; that’s because policy
is part of the art of economics, not part of positive economics. But the framework of the
policy debate about global warming is the economic framework. Thus, even though
political forces will ultimately choose what policy is followed, you must under-stand the
economic framework to take part in the debate.
Question: 1. Undertake some research on the Internet to determine how local economists and
politicians have suggested we deal with global warming, Is there a consensus on the
issue? Does everyone that global warming exist?
2. Looking back at the eight economic goals listed in this chapter which of these might be
affected by policy changes relating to global warming (such as a carbon emission tax)?
Discuss how each goal you have selected would be affected and why
3. What are some alternative suggestions that have been raised for dealing with global
warming? Analyze their feasibility and cost and effect

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