In Section 9. 3, two economic approaches on what to do to slow global warming are presented. An advocate of one approach operates on the premise that, given our current understanding of the science of climate change, global warming is unlikely to be catastrophic to the extent of reducing world income sharply below today's levels by the turn of the 21st century. Hence a drastic cut in GHG emissions may not be needed right away. Instead, what should be implemented is a modest reduction in emissions in the near term with a gradual tightening of GHG emissions through increased carbon taxes as the scientific evidence for increased GW becomes more evident. Here is how Nordhaus (2007), the leading advocate of this policy approach, defended this particular position: "while the findings of such mainstream economic assessments may not satisfy the most ardent environmentalists, if followed, they would go far beyond current global emissions reductions and would be a good first step on a journey of many miles."

Another group of economists has a different view on the matter. This group bases its policy decision on the precautionary principle, where the focus is on prudence and not efficiency as such. This is done, among others, by a deliberate choice to use a very low discount rate on the estimation of future climate damage costs. The effect of this will be to account for the uncertain but still possible irreversible future global warming damage If you are asked to take a position, which of the above two approaches to climate policy makes sense to you? Make sure to defend your position with a good demonstration of the concepts and facts you have learned from reading Chapter 9.

Data from Section 9.3

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At its basic level and from a purely standard economic perspective, concern for climate change is a resource allocation problem. It deals with how much reduction in current output consumption (usually measured in terms of decrease in GDP) society is willing to sacrifice today to mitigate environmental damage arising from increased GW at some future time. More specifically, at any given point in time, society is confronted with rationing its scarce resources (land, labor, capital, environmental assets, etc.) to satisfy competing ends. Thus, if a society decides to use more of its resources to invest in projects intended to avoid future environmental damage arising from global warming (such as investment in renewa- ble energy resources, carbon sequestration by actions taken to preserve forest ecosystems, higher fuel efficiency standards on passenger cars through legislative mandates, and so on), it means less resources will be available to produce goods and services for current consump- tion (such as food, cars, housing, apparel, furniture settings, public recreational facilities, and so on). Viewed this way, the economics of global warming starts with the recognition of the trade-off that exists between two social costs: (1) GHG damage cost-the cost in the absence of climate policy to mitigate emissions of GHGs, and (2) GHG abatement costs-the costs of GHG emissions reductions as mandated by some specific climate policy. The trade-off between these two costs is quite apparent since a higher abatement cost (i.e., a reduction in greenhouse gas emissions) would be expected to cause lower damage cost, and a lower abate- ment cost would have the opposite effect.