insights August 2007
The economic justification for imposing restraints on carbon emissions
The Earth is getting warmer, and it is a widely held view in the scientific community that much of the recent warming is due to human activity. As the Earth warms, the net effect of unabated climate change will ultimately lower incomes and reduce public welfare. Because carbon dioxide (CO2) emissions build up slowly, mitigation costs rise as time passes and the level of CO2 in the atmosphere increases. As these costs rise, so too do the benefits of reducing CO2 emissions, eventually yielding net positive returns. Given how CO2 builds up and remains in the atmosphere, early mitigation efforts are highly likely to put the global economy on a path to achieving net positive benefits sooner rather than later. Hence, the time to act to reduce these emissions is now.
This insights clarifies why government intervention is needed to impose restraints on carbon emissions and, because it is a global problem, why an international policy is necessary. A cap-and-trade policy is likely to be the most successful way of reducing carbon emissions. By establishing a market price for emissions, cap-and-trade systems are effective at reducing noxious emissions, are more likely to limit emissions sufficiently to avoid major increases in temperature and are politically feasible.
For further information please contact Magda Ponce de León Lijs
