Economics of Carbon Emissions and Climate Change
The economics of climate change is a very controversial and disputed. To even discuss what should be done economists have to either state whether or not global warming and climate change exist. According to the CATO article, Climate Change vs. Climate Models (Michaels and Knappenberger, 2013), “The models’ estimate of the increase in temperature resulting from a doubling of carbon dioxide concentration may simply be too high.” As questioned in the article, is there such thing as climate change? Next, if climate change does exist, are carbon emissions a relevant cause of such a phenomena? With all of these questions at hand, how do we deal or cope with the current environmental state through economic means?
Does climate change exist? According to the U.S. Global Research Program (USGRP), climate change does exist. Not in the sense of immediate and drastic changes in the climate, but a gradual fluctuation in temperatures that have been gathered since the early 1900's. The empirical data that has been gathered shows a steady increase in the mean maximum temperature recorded in the Canadian Climate Change Model which is the basis on the 2000 U.S. National Assessment of Climate Change. The original model generated had a sine-like pattern with a .342°C difference between the highest crest and lowest trough. This was then proven an unworthy model when the actual empirical data was recorded with a .169°C difference. There was approximately a .17°C deviation between the projected model and the actual recorded data. There is substantial amount of evidence derived from the graphs to show that there has been a steady increase in the mean maximum temperatures giving scientists the ability to hypothesize and theorize the actuality of climate change (Michaels and Knappenberger, 2013).
The next issue covered by both articles are the effects of high carbon output on the environment and its overall contribution to climate change. “Burning carbon produces carbon dioxide and other greenhouse gases (GHGs) that accumulate in the atmosphere. Over time, an increasing concentration of atmospheric GHGs will result in unwanted climate change: higher global temperatures, greater climate variability, and possible increases in sea levels” (Litterman, 2013). With all of these possible effects, plus many more, the pricing of the carbon output is hard to determine. “The fundamental problem, of course, with the insights provided by the economics of risk management is that the answer depends at its core on something unknowable. How significant is the risk of an unimaginable and unmanageable catastrophe?” (Litterman, 2013). How can the government set a price on something that is so controversial and that there is only a small limited knowledge of the problem, if there is one?
According to What's the Right Price for Carbon Emissions? the United States has placed the price of $20 per ton on carbon emissions where as the IMF has...