The Blind Side of Climate Change Economics

by Rachel Ashton Lim

How accurate are the Intergovernmental Panel on Climate Change’s (IPCC) economic estimates of Climate Change-induced damage? A post-Paris agreement review of its Fifth Assessment Report (Stern, 2016) calls for an imperative revision to its economic model. The review’s main suggestion is for the social science to become better integrated with the natural sciences in order to accurately evaluate the economic consequences of Climate Change, which are direr than is currently estimated. However, the review also suggests that the benefits of transitioning to low-carbon growth are underestimated in the report and must be evaluated more holistically. Combined, these two factors will enable the public, private and non-profit sectors to make decisions that will drive the world into the net-zero carbon economy it must achieve within this century. Continue reading

Climate Change: The Cause of Another Great Recession?

by Joshua Dorman

Hedge fund managers and investors are becoming increasingly worried about a possible second Great Recession caused not by mortgage-backed securities or the fall of major banks, but by an event seemingly unrelated to finance: global climate change. Katy Lederer (2016) attended the seventh annual Investor Summit on Climate Risk last year, a convention designed to tackle the issue of financing the transition to renewable energy that was established at the Paris Climate Talks and discusses the hypothetical effects of a prolonged shift away from fossil-fuel investments. At the summit, approximately five hundred financial professionals with a net sum of twenty-two trillion dollars under management convened in New York City to address this growing threat to the world economy. Under the façade of thousand dollar suits, diamond-studded cufflinks, and wine-and-cheese Hors d’oeuvres, the collective outlook was not an optimistic one. One analogy was repeatedly mentioned: the economic impact of remaining invested in fossil fuels was likened to the collapse of the economy when the housing bubble burst in 2008. Continue reading

The Economy of Climate Change

by Alejandro Sandell-Gandara

In “Economists: Climate Change is Going to Cost a Lot More than Previously Thought”, Chelsea Harvey analyses a survey published by New York University School of Law’s Institute for Policy Integrity. The survey report shows answers from more than 300 experts on how climate change is impacting the world economy.

The survey asked economists a series of questions including when and how the economy will be influenced by climate change and how Unites States policy can influence international action. The report also compared the results to those from a survey conducted on the American public by MIT. Continue reading

The Need for Social Sciences in Climate Policy

by Becky Strong

In 2015, David G. Victor, a professor of international relations at the University of California, San Diego wrote about the importance of looking into the social sciences when seeking to implement policies about climate change. Victor believes that the Intergovernmental Panel on Climate Change (IPCC) has become irrelevant to climate policy due to its focus on only the most well-known facts about climate change and avoidance of controversy.
He believes that in order to find insights that truly matter regarding climate change, one must look beyond the natural sciences. Continue reading

Predicting Long-run Economics of Climate Change

by Simon Bjerkholt

Predicting the future is always hard. According to a journal article written by Richard Rosen and Edeltraud Guenther predicting the net economic effects of climate change mitigation over long periods of time just might be impossible. Presently, the mode for predicting the effects of climate change mitigation on the world economy is to make predictions for the long term such as 2050 or 2100. The authors of this article argue that it would be much more effective to make plans for the short term and then adjust the plans as we learn more about the nature of the problem we are facing and the effectiveness of our attempts to stop it. Continue reading

Free Rider Problem Slowing Down Climate Change Progress

by Chloe Rodman

Yale University economist Robert Shiller (2015) explains how global warming can be slowed by a combination of idealism and economics in his article “How Idealism, Expressed in Concrete Steps, Can Fight Climate Change” for the New York Times. Little progress has been made regarding climate change and global warming. There have been many international conferences in the past few decades but they have been relatively unsuccessful in creating reasonable climate solutions or taking action. Economists have cited externalities as the cause for such large-scale inaction. People and governments have been unresponsive when asked to counter the negative externalities of climate change, such as pollution, by bicycling to work, turning off lights, creating regulation laws, or implementing other sustainable actions. However, in the rare occurrence that communities or people do decide to act, the positive externalities of these actions are consumed by free riders. The free-rider problem has been significant, where the benefits (cleaner air, for example) of sustainable actions are shared by every nation and every person, but the costs rest solely on the shoulders of people who decide to make a change in their daily lives. This free-rider problem reflects traditional economic theory, which states that most citizens and nations will decide not to make a change, because they believe that they can benefit from the change the few are making with no cost to themselves. Continue reading

Willingness to Pay in Different Countries

by Patrick Quarberg

In an attempt to determine the consumer’s willingness to pay for climate change mitigation, Carlson et al.(2012) conducted a survey in three countries in 2010; China, Sweden, and the United States. In general, they observed that the Swedes tended to be most informed and concerned about the effects of climate change, and thus had a higher willingness to pay (WTP). WTP values were found by asking respondents to pick a number from a matrix that identified the most they would be willing to pay to mitigate climate change. The survey asked respondents how much they would pay for different levels of CO2 reduction, specifically 30%, 60%, and 85% reduction in CO2 emissions. Additionally, if respondents stated that their WTP was higher than $220, they were asked to fill in their actual WTP in an open-ended question. Even if respondents had a zero response at the 30% or 60% level, they were still asked about the next level of reduction. The survey also asked several questions about attitudes toward climate change, including whether climate change could be stopped, or just mitigated. Continue reading