The Economics of Climate Change: a Primer

by the Congressional Budget Office

The Economics of Climate Change: a Primer

April 2003

Preface

Contents

1. Summary and Introduction

1

• Common Resources: Addressing a Market Failure

  1
• Balancing Competing Uses

  2
• Policy Options

  3
• International Coordination

  3

2. The Scientific and Historical Context

5

• The Greenhouse Effect, the Carbon Cycle, and the Global Climate

  5
• Historical Emissions and Climate Change

  9
• What the Future May Hold

  15
• Potential Responses

  19
• Types of Uncertainty

  20

3. The Economics of Climate Change

23

• Common Resources and Property Rights

  23
• Economic Trade-Offs

  25
• Distributional Issues

  33

4. Trade-Offs Among Policy Options

35

• Taxes and Permits: Similarities and Differences

  36
• The Distributional Effects of Regulation

  37
• Alternative Uses of Revenues

  39
• Regulation and Innovation

  41
• Ancillary Benefits of Greenhouse Gas Restrictions

  42

5. International Coordination of Climate Policy

43

• International Policy Considerations

  43
• International Institutions to Address Climate Change

  46
• Actions by the United States

  49
• Alternative Approaches

  49

Appendix

 

• Economic Models and Climate Policy

  53

References

57

Figures

1. The Atmospheric Energy Budget and the Greenhouse Effect

   6
2. Carbon Dioxide and Temperature

   8
3. The Carbon Cycle

   10
4. Uncertainty in Projections of Regional Population and Economic Growth

   13
5. Uncertainty in Projections of Regional Carbon Dioxide Emissions and Emissions Intensity

   14
6. Range of Uncertainty in Economic and Carbon Dioxide Emissions Projections

   16
7. Historical and Projected Climate Change

   17

Boxes

1. Discounting and the Distant Future

   28
2. An Example of Integrated Assessment

   30