Economics of Climate Change

The impacts of global warming as described in the introductory chapter are expected to have far-reaching consequences on global economies. The IPCC Fourth Assessment Report published in 2007 examined the aggregate economic impacts of climate change by studying the net economic costs of damage from climate change across the globe. In 2005, the estimated social cost of carbon was approximately 12 US$ per tonne of carbon dioxide (CO2) but reached as high as 95 US$ per tonne across more than 100 estimates [6].

The Stern Review, a 2006 report by the former Chief Economist and Senior Vice - President of the World Bank, revealed that the cost of climate change will have grave consequences on economies unless mitigation measures are pursued. The report suggests that investments of one percent of global GDP are required to mitigate the effects of climate change, while failure to do so could result in a recession worth up to 20% of global GDP [7].

Recognizing the overwhelming cost benefit of mitigating emissions rather than adapting to climate change impacts, this section examines the role of climate policy as an instrument to initiate carbon pricing measures in order to achieve a shift towards low carbon intensive products. This section examines the types of policy measure that exist for reducing emissions, and draws on examples in the EU and USA.

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