�Greenhouse gas (GHG) emissions are exter nalities and represent the biggest market failure the world has seen. We all produce emissions, people around the world are already suffering from past emissions, and current emissions will have potentially catastrophic impacts in the future. Thus, these emissions are not ordinary, localized externalities. Risk on a global scale is at the core of the issue. These basic features of the problem must shape the economic analy sis we bring to bear; failure to do this will, and has, produced approaches to policy that are pro foundly misleading and indeed dangerous. The purpose of this lecture is to set out what I think is an appropriate way to examine the economics of climate change, given the unique scientific and economic challenges posed, and to suggest implications for emissions targets, policy instruments, and global action. The sub ject is complex and very wide-ranging. It is a subject of vital importance but one in which the economics is fairly young. A central challenge is to provide the economic tools necessary as

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The Economics of Climate Change

The Review's executive summary states that "the Review first examines the evidence on the economic impacts of climate change itself, and explores the economics of stabilizing greenhouse gases in the atmosphere. The second half of the Review considers the complex policy challenges involved in managing the transition to a low-carbon economy and in ensuring that societies can adapt to the consequences of climate change that can no longer be avoided".

The report's main conclusion is that the benefits of strong, early action on climate change considerably outweigh the costs.

https://digital.library.unt.edu/ark:/67531/metadc13733/m2/1/high_res_d/stern%20report.pdf

Stern Review: The Economics of Climate Change

Greenhouse gas emissions are fundamental both to the world’s energy system and to its food production. The production of CO2, the predominant gas implicated in climate change, is intrinsic to fossil fuel combustion; specifically, thermal energy is generated by breaking the chemical bonds in the carbohydrates oil, coal, and natural gas and oxidizing the components to CO2 and H2O. One cannot have cheap energy without carbon dioxide emissions. Similarly, methane (CH4) emissions, an important greenhouse gas in its own right, are necessary to prevent the build-up of hydrogen in anaerobic digestion and decomposition. One cannot have beef, mutton, dairy, or rice without methane emissions. Climate change is the mother of all externalities: larger, more complex, and more uncertain than any other environmental problem. The sources of greenhouse gas emissions are more diffuse than any other environmental problem. Every company, every farm, every household emits some greenhouse gases. The effects are similarly pervasive. Weather affects agriculture, energy use, health, and many aspects of nature—which in turn affects everything and everyone. The causes and consequences of climate change are very diverse, and those in low-income countries who contribute least to climate change are most vulnerable to its effects. Climate change is also a long-term problem. Some greenhouse gases have an atmospheric life-time measured in tens of thousands of years. The quantities of emissions involved are enormous. In 2000, carbon dioxide emissions alone (and excluding land use change) were 24 billion metric tons of carbon dioxide (tCO2).

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The Economic Effects of Climate Change

One hundred and three estimates of the marginal damage costs of carbon dioxide emissions were gathered from 28 published studies and combined to form a probability density function. The uncertainty is strongly right-skewed. If all studies are combined, the mode is $2/tC, the median $14/tC, the mean $93/tC, and the 95 percentile $350/tC. Studies with a lower discount rate have higher estimates and much greater uncertainties. Similarly, studies that use equity weighing, have higher estimates and larger uncertainties. Interestingly, studies that are peer-reviewed have lower estimates and smaller uncertainties. Using standard assumptions about discounting and aggregation, the marginal damage costs of carbon dioxide emissions are unlikely to exceed $50/tC, and probably much smaller.

The marginal damage costs of carbon-dioxide emissions’

The marginal damage costs of carbon dioxide emissions: An assessment of the uncertainties

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L. Ogallo

Papers

Vulnerability to climate change and reasons for concern: a synthesis