"The Arctic will retain its power to amaze for a long time. Yet it is now changing beyond the usual regional and annual variations in sea-ice formation, glacier melt and so forth. The Arctic is clearly melting. Its floating ice cap is shrinking and thinning and its glaciers are retreating. By the end of this century, maybe much sooner, there will be frequent Arctic summers with almost no sea...
Economic Impacts of Climate Change
In the last several decades, the issue of climate change has appeared on the radar screen of almost every individual in the developed world. The arguments that result over why, when, and if climate change is occurring can often seem tiresome and meaningless, but their eruption undoubtedly stems from a concern over the potential ramifications a change in the earth’s temperature could have for society. These ramifications are often classified as the “economic” impacts of climate change.
The economic impacts of climate change vary greatly, but are generally tied to the severe weather that experts believe climate change promises. Examples of this severe weather include increased heat, hurricanes, and floods. Concerned climate scientists predict that these conditions could hinder effective crop growth, which would subsequently harm the agricultural industry and adversely affect the population dependent on its food supply. Additionally, climate scientists imply that these conditions promise to damage property, increase death tolls, hurt the tourism industry, and generally deteriorate many environmental assets that we have come to rely upon.
Adverse economic effects such as the aforementioned are often advanced in highly visible writings such as the IPCC reports on climate change and the famous British climate report known as the Stern review. The latter report especially advances a bleak economic picture by suggesting that climate change and its effects, if unchecked, “would cost at least five per cent - and possibl[y] as much as 20% - of the world’s output.”
Furthermore, reports such as the Stern review also suggest that “climate change is an example of market failure involving externalities and public goods,” and therefore, the problem of greenhouse gas emissions cannot be solved effectively through the free market. Instead, it is argued that the global community must combat the social injustice of climate change problems for developing countries and future generations through a variety of regulatory policies which discourage the release of man-made pollutants into the air.
Other examples of economic literature, however, disagree with Stern’s alarming assessment that climate change could pose exorbitant costs to future global GDP. A variety of economists point out that Stern uses a much lower “discount rate” than is normally accepted, and because of this low discount rate, Stern’s work suggests that climate change impacts will be severe and current mitigation costs will be a worthwhile investment. According to the normally accepted, higher discount rates, however, climate change impacts appear to be less problematic, and therefore, mitigation investments seem to offer a much smaller rate of return. Given this low rate of return, it is believed that the economic and physical well-being of current and future generations would be better served by allowing the market and human innovation to remain freely unhindered by government greenhouse gas regulation.
Indeed, it is argued that government regulation of such things as greenhouse gases can actually add to the undesirable economic impacts of climate change. These undesirable impacts are often seen through Cap and Trade legislation like the American Clean Energy and Security Act of 2009, a bill which sought to reduce American carbon emissions through increased taxation of various industries, most notably the energy industry. Although this bill failed to become law, its potential effects were heavily examined by public policy analysts and economists. They determined that its heavy taxation on the energy industry would cause increased unemployment and financial difficulties for American families, which would in turn severely cripple the United States’ economy.
The speculation about the economic impacts of climate change is admittedly vast and varied. In order to help readers sort through the variety of viewpoints on this issue, this topic presents the potential economic costs and benefits of climate change. Additionally, this topic examines the effects that increased climate change regulation can have on the global economy today and in the future.
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