MPPSC Prelims & Mains Notes, MPPSC Test Series
MPPSC Exam Preparation – General Studies
Environment & General Science
Highlight the Economics of Climate Change
The economics of climate change is where the world’s climate has already changed measurably in response to accumulating greenhouse gas (GHG) emissions. These changes, as well as projected future disruptions, have prompted intense research into the nature of the problem and potential policy solutions. This document aims to summarize much of what is known about both, adopting an economic lens focused on how ambitious climate objectives can be achieved at the lowest possible cost.
Considerable uncertainties surround both the extent of future climate change and the extent of the biophysical impacts of such change. Notwithstanding the uncertainties, climate scientists have reached a strong consensus that in the absence of measures to reduce GHG emissions significantly, the changes in climate will be substantial, with long-lasting effects on many of Earth’s physical and biological systems.
The central or median estimates of these impacts are significant. Moreover, there are significant risks associated with low probability but potentially catastrophic outcomes. Although a focus on median outcomes alone warrants efforts to reduce emissions of GHGs, economists argue that the uncertainties and associated risks justify more aggressive policy action than otherwise would be warranted.
The abatement of GHG, particularly CO2, implies curtailment of energy consumption. Energy is a vital factor of production, and its replacement and/or reduction will entail a shift away from the current production method. If current systems employ efficient production techniques, a change in factor production will increase the cost of production and have an adverse impact on the national income. This section briefly summarizes the crucial factors determining the cost of abatement and outlines the present understanding of the cost to the economy of the GHG abatement policies.
A wide variety of models have been developed in both economic and engineering disciplines to access the cost of GHG abatement policies. The differences in model estimates are wide and the number of factors contributes to these differences. The following sub-sections discuss the two main traditions of the modeling – namely, top-down and bottom-up, and there cost estimation and the potential of the so-called where and when flexibilities in bringing down the abatement cost.
Empirical evidence suggests that internal dis-economies of scale are likely to lead to increasing marginal costs of response options. The literature on response options focuses mainly on individual technologies and their cost-effectiveness.
Emphasis on engineering aspects and the limited availability of reliable and accepted data on the costs and benefits of response options has resulted in the assessment of options in isolation rather than on the basis of mutual comparison. However, a generic assessment would require a framework that allows for the simultaneous evaluation of technologies or options.
Globally, low-income countries will lose larger shares of their economic output.
Unlike other pollutants that have localized or regional effects, GHGs produce global effects. These emissions constitute a negative spillover at the widest scale possible: For example, emissions from the United States contribute to warming in China, and vice versa.
Moreover, some places are much more exposed to economic damages from climate change than are other places; the same increase in atmospheric carbon concentration will cause larger per capita damages in India than in Iceland.
This means that carbon emissions and the damages from those emissions can be (and, in fact, are) distributed in very different ways. The impacts on per capita GDP based on a study of the GDP growth effects of warming, highlighting the relatively high per capita income reductions in Latin America, Africa, and South Asia (though higher-income countries would lose more absolute aggregate wealth and output because of their higher levels of economic activity).
The figure also uses a higher estimate of potential economic damages that takes into account impacts on productivity and growth that accumulate over time as opposed to looking at snapshots of lost activity in a given year. Thus, the estimates are higher than those presented in facts, highlighting both the uncertainty and the potentially disastrous outcomes that are possible.
Beyond showing the potentially destructive scale, this map suggests global inequity: Several of the regions that contribute relatively little to the climate change problem – regions with relatively low per capita emissions – nevertheless suffer relatively high climate damages per capita.
Further reductions are implied by the 2015 Paris Agreement, under which 195 countries pledged to take additional steps. The Paris Agreement’s pledges, if met, would keep global temperatures 0.5°C lower than “Current policy” and about 1.5°C lower than “No climate policy” in 2100 (see figure E). Although this can be viewed as a positive outcome, a more negative perspective is that these policies would still allow temperatures in 2100 to be 2.6 to 3.2°C above preindustrial levels—significantly above the 1.5 or 2.0°C targets that have become focal points in policy discussions.
In the following set of facts, we describe the costs of climate change to the United States and to the world as well as potential policy solutions and their respective costs.
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