Thursday, November 16, 2006

The economics of increasingly disasterous global warming

From BBC, a couple of weeks ago (link via John Orford):
A report by economist Sir Nicholas Stern suggests that global warming could shrink the global economy by 20%. But taking action now would cost just 1% of global gross domestic product.
Studies about global warming are nothing new. What's interesting about the Stern Report is that it's "the first major contribution to the global warming debate by an economist, rather than an environmental scientist."
[The report] warns that if no action is taken:
  • Floods from rising sea levels could displace up to 100 million people
  • Melting glaciers could cause water shortages for 1 in 6 of the world's population
  • Wildlife will be harmed; at worst up to 40% of species could become extinct
  • Droughts may create tens or even hundreds of millions of "climate refugees"
The review coincides with the release of new data by the United Nations showing an upward trend in emission of greenhouse gases - a development for which Sir Nicholas said that rich countries must shoulder most of the responsibility.
John Orford suggested to use Pigouvian Taxes as disincentives to pollution:
Pigou noticed that production often causes costs to the environment which the company themselves don't have to pay. Obviously the users of the environment generally have to pay the cost sooner or later in some form.

Pigou's idea was to tax the sale of products depending on how polluting they were, in effect the government would recoup the cost to the environment of the product. Consumer's would directly see the high cost of highly polluting products, which would give them an incentive to seek out less polluting products and firms to pollute less.

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  1. Thanks for the reference!

    (It's not /my/ idea, but I will take the plaudits nevertheless ;))

    The really elegant part though, is using income from taxes on polluting products to lower other taxes - like income tax -- thereby lowering the cost of labour and increasing employment :)

  2. You're welcome.
    I think it's an important reference that I've missed.