Global Warming and Climate Change have now become the buzzwords and rightly too. Carbon Dioxide released from the burning of fuels especially fossil fuels is a significant contributor to the global warming effect. The ever increasing concentration has been held responsible for the breaking of Arctic Ice Caps; the retreat of glaciers, increase in salinity, storms, floods and so forth. In short, the results could be catastrophic for civilization as we know it. Greenhouse gases tend to stay put before they dissipate. While the jury is still out on the ways to tackle this problem, there is no doubt that economic trade offs will be involved.
Economics provides the necessary tools to realistically address the problem. "It's really now a battle over the economics," said James E. Rogers, chief executive of Duke Energy, who has long advocated curbing carbon emissions. "The debate is not about the climate problem. Everybody could agree on the principles and still get the economics wrong." ( NYT 6th,June,2008 )
The least cost option, as identified by economists, is one which increases reductions over decades. This will allow for capital depreciation and also the replacement of conventional energy sources like coal, fuel oil, etc. with alternative sources like wind, solar power, Nuclear Power and the like. It is no coincidence that China and India being among the major sources for greenhouse emissions have been under pressure from the OECD and the Group of Eight to look at alternative energy sources. Neither is any altruism involved. Economics dictate adoption of a pragmatic approach which would be all inclusive i.e. include the developed and developing countries (who are way below emission levels in the developed economies and still in an economic growth path with no incentive to cut down on such emissions). Climate is perceived as a public good and therefore international cooperation is de rigueur.
Achieving meaningful international cooperation is and will be a challenge." Free Riding " cannot be prevented as the developing countries cope with the issues of bare necessities. The principles of Game Theory have been applied to address this problem. Concepts such as Carbon Tax and Carbon Emission trading have been mooted to enhance cooperation.
The conventional approach to assess the effects of climate change is to evaluate the cost benefit. However, the intangible benefits or losses accruing from climate protection are difficult to quantify .But research does suggest that benefits to developing countries would be more being primarily dependent on agriculture. As far as the cost of climate protection is concerned, there are conflicting views .. from modest to huge :
"Billions of dollars are at stake. Depending on how the nation decides to tackle the problem, electricity bills in some states could rise 50 percent, and gasoline prices could go up 50 cents a gallon." (NYT June 2, 2008) While Frank Ackerman makes out a strong case on " The Unbearbale Lightness of Regulatory Costs". (Ackerman, Frank; Global Development and Environmental Institute ; Working Paper No.06-02; Feb. 2006).There are a number of economic issues affecting cost and benefit analysis such as flexibility, technology, etc. which would then suggest the optimal path.