Module 9: Climate Economics

How much confidence should we have in economic modeling of the costs likely to be imposed by climate change, or of estimated costs of mitigating climate change? And how does our confidence in economic models compare to our confidence in physical models?


There is perhaps no more conflicted a topic than “the economics of climate change.” A climate change panel at a National Economics Association several years ago, for example, concluded that ocean acidification poses little risk because fisheries account for just a small fraction of global gross domestic product (GDP). Ecologists might dare to disagree.

Much of the policy and political discussion around climate change has been based on perceptions regarding the costs of mitigating climate change, vs. the costs of climate change itself. President George W. Bush, for example, effectively declared mitigating climate change to be "too expensive.”

Increasingly, however, observers including economists are questioning whether conventional economic thinking, including a cost–benefit analysis framing of the problem in the first place, makes any sense for a problem like climate change. In the view of those observers, we usually don’t intentionally and explicitly harm future generations just because the net-present-value (NPV) of a decision looks favorable today.

But even if economic analysis is going to be used to evaluate climate change policy options, what’s the right way to think about that analysis. How much confidence, for example, should we have in economic modeling of the costs likely to be imposed by climate change, or of estimated costs of mitigating climate change? And how does our confidence in economic models compare to our confidence in physical models?


This module of Your Climate Change Phd explores many of the key issues surrounding the intersection of economics and climate change, which ultimately will drive a lot of societal risk assessment and decision-making. Topics include:

  • Carbon pricing
  • The role of Integrated Assessment Models in climate economics
  • Comparing climate models to economic models
  • The impact of discounting the future on climate economics
  • The economics of changing extreme event probabilities
  • The Social Cost of Carbon
  • Risk-neutral vs. risk-averse economic analysis and decision-making
  • Marginal abatement cost curves for climate change mitigation
  • Business vs. societal climate economics
  • The “fat tails” of potential economic outcomes

In addition to exploring answers to these and other questions, the module will point you to all kinds of resources to dig deeper into these and related topics.

Module Content

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REQUIRES PURCHASE Economics as Frame

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REQUIRES PURCHASE The Costs of Climate Change

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REQUIRES PURCHASE The Social Cost of Carbon

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