To Slow or Not to Slow: The Economics of the Greenhouse Effect

Over the last decade, scientists have studied extensively the greenhouse effect, which holds that the accumulation of carbon dioxide (CO2) and other greenhouse gases (GHGs) is expected to produce global warming and other significant climatic changes over the next century. Along with the scientific research have come growing alarm and calls for drastic curbs on the emissions of greenhouse gases, as for example the reports of the Intergovernmental Panel on Climate Change (IPCC [I990]) and the Second World Climate Conference (October I990). To date, these call to arms for forceful measures to slow greenhouse warming have been made without any serious attempt to weigh the costs and benefits of climatic change or alternative control strategies. The present study presents a simple approach for analyzing policies to slow climate change. We begin by summarizing the elements of an economic analysis of different approaches to controlling greenhouse warming. We then sketch a mathematical model of economic growth that links the economy, emissions, and climate changes and summarize the empirical evidence on the costs of reducing emissions and concentrations of greenhouse gases and on the damages from greenhouse warming, relying primarily on data for the United States. The different sections are then integrated to provide estimates of the efficient reduction of greenhouse gases, after which the final section summarizes the major results.