Climate Economics

Much of the policy and political discussion around climate change has been based on perceptions of the relative costs of mitigating climate change vs. the costs of incurring climate change. Particulary after President George W. Bush declared mitigating climate change to be "too expensive."

Increasingly, however, observers including some economists are questioning whether typical cost–benefit analysis is even appropriate for a problem with the characteristics of climate change. In their view, we usually don’t intentionally and explicitly make decisions that would dramatically and negatively affect future generations just because the net-present-value (NPV) of such decisions looks favorable to today’s decision-makers.

But even if economic analysis is going to be used to evaluate climate change policy options, what’s the right way to think about that analysis. How much confidence, for example, should we have in economic modeling of the costs likely to be imposed by climate change, or the costs of mitigating climate change, as compared to the confidence we have in the physical models used to forecast climate change?

This chapter of Your Climate Change MBA helps you explore the key issues surrounding the intersection of economics and climate change, which ultimately will drive a lot of climate change decision-making.

  • The use of cost-benefit analysis for climate change decision-making
  • The implications of economic discounting for climate risk perceptions
  • The Integrated Assessment Models used in economic analysis
  • The calculation of the Social Cost of Carbon
  • Risk-neutral vs. risk-averse economic analysis and decision-making
  • Marginal abatement cost curves for climate change mitigation
  • Carbon pricing as internalizing the economic externality.
  • The “fat tails” of potential economic outcomes

Your Climate Change MBA offers you extensive insight into these and other topics relevant to economics and climate change, as well as hyperlinking you to curated knowledge collections in the Climate Web itself where you can dig as deep into these topics as you wish.