2. Economics of Climate
Change, I
I. Review: Rothbard
A. Overview of Law
B. Applied to Pollution
II. Review: Free-Market
Environmentalism
A. Endangered Species
B. Overfishing”Tragedy
of the Commons”
III. Economics of Climate
Change
A. IPCC
B. ECS
C. Integrated Assessment
Models (IAMs)
D. “Social Cost of Carbon”
E. Regulations vs. “Market
Solution”
F. Carbon Tax vs. Cap-
and-Trade
11. B. Equilibrium Climate Sensitivity
(ECS)
In climate models, the equilibrium (after all
feedbacks) increase in global mean near-surface
air temperature from a doubling of carbon
dioxide atmospheric concentrations.
IPCC AR4 estimated ECS in range of 2 – 4.5
degrees Celsius, with a best estimate of 3
degrees.
17. f. Carbon Tax vs. Cap-and-Trade
If government had perfect knowledge of
“abatement costs” (marginal compliance cost of
restricting an additional ton of emissions) and
schedule of social cost of carbon (marginal
benefits of avoided future climate change
damages) then two approaches would be
equivalent.
But with uncertainty, government might err and
one approach will be preferable (minimize
deadweight loss due to mistake) depending on
cost curves.
18. Carbon Tax better if abatement
costs steeper than climate change
damages
Emission Reductions
19. Cap-and-Trade better if abatement
costs Shallower than climate change
damages
Emission Reductions