Climate Economics : The State of the Art

This book reviews the state of the art in climate economics, and in the science on which it rests. It covers the estimation of climate damages, an area where economic models lag far behind current empirical research. Recent work on uncertainty and catastrophic risk has challenged past approaches to climate policy, offering new decision rules for extreme uncertainty, and alternative weightings of worst-case scenarios. Longstanding debates on discount rates and intergenerational obligations have been transformed by perspectives from finance, ethics, and other fields. The applied policy debate rests on surprisingly subtle assumptions about mitigation costs and technologies, and on the largely unexplored economics of adaptation.

Climate science paints a bleak picture: The continued growth of greenhouse gas emissions is increasingly likely to cause irreversible and catastrophic effects. Urgent action is needed to prepare for the initial rounds of climatic change, which are already unstoppable. While the opportunity to avert all climate damage has now passed, well-designed mitigation and adaptation policies, if adopted quickly, could still greatly reduce the likelihood of the most tragic and far-reaching impacts of climate change.

Climate economics is the bridge between science and policy, translating scientific predictions about physical systems into projections about economic growth and human welfare that decision makers can most readily use but it has too often consisted of an overly technical, academic approach to the problem.

Getting climate economics right is not about publishing the cleverest article of the year but rather about helping solve the dilemma of the century. The tasks ahead are daunting, and failure, unfortunately, is quite possible. Better approaches to climate economics will allow economists to be part of the solution rather than part of the problem. This book analyzes potential paths for improvement.