Current scientific consensus has reached the conclusion that the average temperature of the Earth is increasing, and the primary causal factor of the increase is due to carbon emissions caused by human activity over the past couple hundred years (IPCC, 2014). Projected consequences of this increase in temperature include mass migration, decreased food security, increased conflict between nations, and other related events.

Earlier this year, President Biden tookexecutive actionsto simultaneously tackle climate change and create jobs. TheEuropean Central Bankand theFederal Reserve Bankhave both declared that climate change is a source of financial risk to be reckoned with and requires government action and policy response.

• When looking at something that can have such devastating consequences, it is important to determine what factors led to the problem in the first place. Using the concept of externalities, explain how carbon emissions could have grown large enough to impose such substantial costs to society.
• What policy solutions do you believe can be utilized to correct the externalities associated with carbon emissions? Explain.(Take a look atthis article inScience
• that purports that while a carbon price(tax) is thebest policy option on efficiency grounds, new research indicates thatgreen industrial policy helps grow a political landscape of interests and coalitions that benefit from a low-carbon energy transformation.)
• It is also important to contextualize any changes to policy with what could happen to the macro-economy in response.
• How do you think consumer spending would change if a policy made goods that polluted the air with carbon emissions more expensive? How would such a policy affect the GDP?

Do you believe there are any alternatives or actions that can be taken to minimize negative impacts on the macro-economy?