The economic benefits and costs of mitigating global warming are widely debated. This column shows that based on current scientific knowledge and standard economic principles, a simple formula for the marginal damage of emissions can be constructed. The formula considerably strengthens the case for carbon taxation versus caps, allows straightforward calculation of the ‘global carbon debt’ rich nations owe to poor nations and future generations, and offers a yardstick for carbon capture and storage investments.
There now is widespread consensus that the key driver of climate change is the emission of carbon dioxide from burning fossil fuels (Metz et al. 2007). Since climate change affects the global economy, this is a textbook example of what economists label a ‘pure externality’. There is substantial uncertainty about how large this externality is. Yet, available knowledge can be used to provide an estimate of the externality that is surprisingly robust. In this note we argue that this provides a strong case for using a carbon tax rather than emission caps.
See full Article: http://www.voxeu.org/article/simple-formula-climate-linked-economic-damage
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