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We’re heading for the cliff – but does it matter?

We’re heading for the cliff – but does it matter?. Economic perspective(s) on climate change Dr. Jane Hall Department of Economics and IEES CSUF 2009. The broad economic view. It’s all about opportunity cost. Therefore the sacrifices of any action must be more than balanced by the gains.

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We’re heading for the cliff – but does it matter?

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  1. We’re heading for the cliff – but does it matter? Economic perspective(s) on climate change Dr. Jane Hall Department of Economics and IEES CSUF 2009

  2. The broad economic view It’s all about opportunity cost. Therefore the sacrifices of any action must be more than balanced by the gains. Logical conclusion: adapting might be better than averting. Or is it?

  3. The analytical challenges “Rarely do analysts confront cost–benefit analyses with dimensions so long-term, uncertain and non-marginal. This places extraordinary strains on analytical techniques that generally have been devised for more conventional projects, and almost inevitably means that value judgments and ethical perspectives become more prominent”. Australia’s Productivity Commission commenting on the Stern Report

  4. Core analytical issues: • What is the objective? • Time frame – perhaps 1,000 years. • Cliff or glide path? • Irreversibility. • Dynamic uncertainties and feedbacks. • Technological change. • Weight given to future generations.

  5. Core policy issues: • This is a global externality: “the biggest market failure the world has seen.” Stern, AER, 2008 • How do we allocate rights to the atmosphere? • Scale and scope are unprecedented. • “At the heart of good policy will be a price for GHGs.” Stern, AER, 2008 How do we set that? • Equity. • How to accelerate technology.

  6. Successful policies • Must get prices “right.” • Must be global. • Must be effective – the right scale. • Must be efficient – costs are minimized. • Must be equitable – reflect relative capacities and responsibility.

  7. How do we get there? • Admit the limits of marginal analysis to address this problem. • Let scientists set the scale – some atmospheric stock. • Design price-driven incentives to reduce emissions toward lowering the stock. • Ensure that the impact of incentives is equitable – across generations.

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