Economics of Global Warming - Climate Change Science

Climate Change Science

There are a number of features of climate change that are significant from an economics perspective. The first is the difference between climate change and other environmental problems, like acid rain. One of the pollutants that causes acid rain is sulfur dioxide (SO₂), and is a "flow" pollutant, meaning that reducing the flow (or emission) of the pollutant into the atmosphere will lead relatively quickly to a reduction in its environmental impact.

For climate change, the pollutant is human (or anthropogenic) emissions of greenhouse gases (GHGs). Carbon dioxide (CO₂) is the most important of the anthropogenic GHGs. This is in terms of CO₂'s contribution to radiative forcing, which measures the warming or cooling effect of various factors that affect the climate. CO₂ is a "stock" pollutant. This means that the contribution of CO₂ to climate change is determined more by the total stock (or concentration) of the gas into the atmosphere rather than its annual flow into the atmosphere. More details on the relationship between stocks and flows of GHGs are given in the climate change mitigation article, which uses the more common physical science terms of "concentration" when referring to stocks of GHGs in the atmosphere, and "emissions" when referring to flows of GHGs into the atmosphere.

An example of the relevance of stocks and flows to climate change economics are analyses which attempt to find cost-effective (i.e., cheapest) ways of reducing global GHG emissions. Often in these analyses, future emissions of GHGs are substantially reduced from their present level over time, with the aim of limiting the atmospheric concentration of GHGs to a particular level. This type of analysis requires not only an understanding of the natural sciences, e.g., the stock-flow nature of GHGs, but also an understanding of technical, social and economic sciences, e.g., of the availability and cost of technologies to reduce GHG emissions, both now and in the future.

Another aspect of the economics is the long-term nature of the problem. While more than half of the CO₂ emitted is currently removed from the atmosphere within a century, some fraction (about 20%) of emitted CO₂ remains in the atmosphere for many thousands of years. Climate change impacts are long-term, for example, future sea level rise due to global warming is projected to continue for centuries to millennia. Reducing emissions (climate change mitigation) also requires decisions to be made that have long-term consequences. For example, in the energy sector, a coal-fired power station may be in operation for more than 50 years. Thus, short term investment decisions in the energy sector can have long-term effects on future emissions.

Another aspect of economics relevant to this is the choice of social discount rate. The social discount rate is used by governments to compare the economic effects of different policy decisions over time. The long-term nature of climate change makes the choice of social discount rate important in economic cost assessments of climate change policies.