Economics of Global Warming

When we turn on the television, flip through a newspaper, or search the internet, we find ourselves being constantly bombarded by an ever increasing amount of information about the phenomenon of global warming. Climate change has far reaching effects that encompass all the basic elements of life for individuals around the world: access to water, food production, health, and the environment. People are beginning to realize that it is not something that can simply be ignored. Evidence of flooding, extinction threats toward many species, and the possibility of humans actually having to relocate have caught citizen??™s attention and they are looking for answers. Global Warming has become one of the most pressing issues of modern society. The economic effects are very significant and deserve our attention. The Stern Review on Economics of Climate Change argues that, ???[d]ecisive and strong international action is urgent: Delay means greater risk, and higher long term costs.???
It is evident that all countries will be affected, although the extent to which is not a uniform reflection of the damages they are inflicting upon the environment. A specific countries part per million concentration output of green house gases is referred to as flow. It is when these annual emissions of economic activity combine as a stock concentration that negative temperature increases and physical damages become the result. Consequently, even though the larger industrialized economies are creating the bulk of the problem, they will not be the first to feel the consequences. Instead the burden will be felt greatest by those countries with limited economic resources, low levels of technology, poor information and skills, limited infrastructure, unstable or weak institutions, and inequitable empowerment and access to resources. Such nations have little adaptive capacity and are highly vulnerable to climate change.
One of the most vulnerable means of productions is that of agriculture because it is directly dependent on temperature, precipitation levels, and soil conditions. These variables cannot be controlled and are essentially irreversible. To add to the problem, the regional distribution is uneven. While production may slightly rise in higher latitudes because of a possible increase in arable land, overall, an assumed decline in available water will reduce production levels. This destructive effect on global food production is the inverse of what a functional future society will require to be sustainable. As global warming causes the desertification of agricultural land, compounded with a shortage of water, the result will lead to problems in supplying food and rising prices. This is of particular importance for those countries which are net importers of food stocks. Having to cope with the projected increase in population size and a decrease in viable food reserves is something that we need to try and avoid. From an economical perspective we could save a great deal of money and capital if we preserve the land and resources we have on hand, instead of having to invest in fabricating new means of food production for future generations.
The Intergovernmental Panel on Climate Change (IPCC) predicts that if we go on with ???Business as Usual???, by 2100 global sea levels will probably have risen by 9??“88cm and average temperatures by between 1.5 and 5.5 ?C. Well at first glance, one might consider these minuscule changes, and a mere coincidence associated with the aging of planet Earth, they truly deserve our uttermost attention. In addition to problems associated with food production one can anticipate a rising sea level. Loss of land and structural damage will be soon to follow. It is expensive trying to fight rising sea levels, and even the best flood defences may be unsuccessful in preventing the inevitable. In recent years, storms have also been on the rise. Events similar to that of Hurricane Katrina in New Orleans are becoming all too common and have resulted in huge insurance payouts. If current trends continue, one can argue that higher insurance premiums will become the norm, and some areas may even become uninsurable. We should also consider the affect of changing temperatures on wildlife. Many species are extremely sensitive to change, and cannot adapt fast enough to cope with current climate change trends. Although the exact economic cost is hard to evaluate, as plants and animals go extinct we are losing out on opportunities for future medications to be discovered and invented. Imagine how a cure for cancer would reduce the strain on the healthcare system. Lastly we need to consider migration. Overcrowding could present itself as a major problem, because those that are suffering will relocate to countries that are ???better??? off. If we want to maintain our better our current standard of living it is vital that we implement change today, and not procrastinate till tomorrow, next week, or a month from now.
Such factors will have a widespread affect so it is important to employ a method of international burden sharing. A simple example of this could be cooperation to bring forward new and improved technology; including the sharing of risks on demonstration projects, and coordinating big research projects. More specifically, one approach could be to impose national targets on emissions as reflected in the Kyoto Protocol. A secondary, more probable approach, would call for a set of actions that states would agree to undertake. These mutually agreed behaviours would aid in the mitigation of emissions.
Perhaps the most reasonable way to allocate emission rights and the obligation to reduce emissions would be to calculate a “business-as-usual” trajectory of emissions for each country on the basis of recent history, development prospects, and past experience with the evolution of greenhouse gas emissions in relation to economic development. Then each country could be charged with reducing emissions by a uniform percentage, chosen in relation to global reduction requirements, relative to the assigned trajectory.
By doing show this would put countries on a more level playing field in regards to population, GDP, and current pollution levels. Furthermore, it would make it harder for countries to opt out of signing aboard and to point fingers at one another. Such a system would make nations responsible for themselves and would require them to assume accountability for their actions.
The European Emissions Trading Scheme (EU ETS) is currently the largest emissions trading scheme and serves as a role model for an effective cap and trade mechanism. The CDM (Clean Development Mechanism) plays an important economical role as it aids in reducing the amount of future climate change. It does so by first, improving the cost-effectiveness of GHG (green-house gas) mitigation policies in developing countries. Secondly, by reducing carbon ???leakage??? of emissions from developed to developing countries. Leakage is where mitigation actions in one country or economic sector result in another countrys or sectors emissions increasing. (e.g. through relocation of polluting industries from Annex I, developed countries to non-Annex I, developing countries) Thirdly, it boosts transfers of clean, less polluting technologies to developing countries. Such joint implications would benefit from an increasing size of the carbon markets. By expanding schemes to new countries and sectors, we could essentially reduce the flow of GHG??™s.
Countless scientific studies have illustrated the damages generated by green house gas emissions. They are external, global, large, long term, and potentially irreversible. This presents a unique challenge for economists because it could lead to the greatest and widest ranging market failure. The solution lays in the fact that we know annual global emissions must be below ten. This is the earth??™s natural ability to absorb green house gases, anything above and the stock will continue to grow. On the same note, we also know that a tone of carbon does the same amount of damage no matter where it comes from in the world. These two facts taken together make a carbon tax a likely solution to current problems. The idea behind this would be a broadly comparable global price for carbon reflecting the damages imposed on the environment by individual manufacturing sectors, states, and countries. Instead of having to pay additional taxes to the government the theory is that businesses would instead invest money into research and come up with more efficient ways of doing things. Perfecting current methods by reducing the amounts of harmful emissions released into the atmosphere. As well as being more environmentally friendly instead of just focusing on sales margins. Yes, at first it may be hard to encourage on an international level, but such are the only solutions to a global problem. We must build shared awareness, a sense of shared trust, understanding, and cooperation. Respect will become important, and this fueled by a notion of shared responsibility will lead countries to honor such commitments.
It is time we accept the inevitable??” the need to take action against the problems associated with global warming, and the evils of procrastination. As the temperature rises, the damages increase un-proportionately to that of temperature. The longer we wait, the greater the consequence will be and the harder it will be to get GHG??™s at a manageable level. By definition, adaptation requires that you know what you are adapting to, and you cannot do that in advance. We cannot prepare for what we do not know, so it is best to use our resources to preserve what we have. This is all the reason for us as citizens, societies, and nations to implement the largest degree of progressive change that we possibly can and respect planet Earth. If things like recycling and the threat of extra taxes do not motivate you to change. Look at the economics of it and see how vast of a financial burden we can eliminate for future generations, if we simply implement small gradual changes today on an international level.

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The National Archives. (2008) Stern Review Report. Retrieved from reviews/stern_review_economics_climate_change/stern_review_report.cfm 2010-10-20