|IS THERE AN ECONOMIC CASE FOR TACKLING CLIMATE CHANGE?|
Aruba, November 30, 2015 - What is the economic case for tackling climate change? And if that case can be made, what's the best way of going about it?
And, yes, this is all based on the assumptions that policy makers are taking with them to the Paris conference: that the climate is warming due at least partly to human activity and it is possible to slow or halt that process.
Economists have been wrestling with the question since at least the early 1980s. The approach most often adopted is to treat the problem rather like an investment appraisal, to do a cost-benefit analysis - though this method has its critics even among economists. The investment side of it is shifting the world to an economic system that produces much less by way of climate changing gas emissions, or even none at all.
You then compare the cost of doing that with the benefits, in the shape of climate-related harm avoided.
It sounds straightforward. But of course it isn't.
Measuring both elements -the costs and the benefits - is fraught with difficulty.
So is a third factor: how you compare costs in the near future with more distant benefits. More on that later.
'Greatest market failure'
There's another way of looking at it.
One of the basic ideas in economics is that you tend to get the best results if people or businesses that take decisions have to take account of all the benefits and costs.
Pollution is the text book example of a situation where that may not happen. The polluter has no incentive to consider the impact of the pollution.
It is what economics textbooks call an externality, which in turn is one example of what they call "market failures". The standard economic analysis of climate change sees in those terms.
There are externalities: emissions produced by a person or business lead to costs - and sometimes benefits - for others which the emitter has no incentive to consider.
Read more: http://www.bbc.com/news/business-34943831