Topic 18: Economics of Climate Change

1. Topic 18: Economics of Climate Change David Letson Marine Affairs/Economics University of Miami Can we protect ourselves from global climate change without sacrificing economic growth or our standard of living? The stakes are quite high. Some fear the environmental and socioeconomic costs of climate change itself. Others are more fearful of the economic consequences of trying to avoid climate change. The debate, to a large extent, is played out through economic analysis of climate change policy. Today I want to introduce you to the basic economics of climate change. Can we protect ourselves from global climate change without sacrificing economic growth or our standard of living? The stakes are quite high. Some fear the environmental and socioeconomic costs of climate change itself. Others are more fearful of the economic consequences of trying to avoid climate change. The debate, to a large extent, is played out through economic analysis of climate change policy. Today I want to introduce you to the basic economics of climate change.

2. Main Points Climate is an essential economic resource. Agriculture, forestry, tourism and fisheries Energy, water, construction, transportation Greenhouse gases as global externality. Protection as public good. Benefits from reducing risk. Costs of protection. Climate is an essential economic resource. Stable, favorable climatic conditions are an essential input for agriculture, forestry, tourism and fisheries. Human activities that alter the levels or variability of climate represent a global externality since market prices do not capture these effects. Protection from climate change is public good, since we might all benefit but no one will willingly pay for it. Who should be concerned? Societies whose wealth is derived from agricultural and hydrologic resources are particularly vulnerable and may benefit from reducing their exposure to risk. What should be done? Have to compare costs and benefits.Climate is an essential economic resource. Stable, favorable climatic conditions are an essential input for agriculture, forestry, tourism and fisheries. Human activities that alter the levels or variability of climate represent a global externality since market prices do not capture these effects. Protection from climate change is public good, since we might all benefit but no one will willingly pay for it. Who should be concerned? Societies whose wealth is derived from agricultural and hydrologic resources are particularly vulnerable and may benefit from reducing their exposure to risk. What should be done? Have to compare costs and benefits.

3. The Murky Crystal Ball