Understanding Climate Change from an economics perspective

Michael Spence has written a very timely paper giving an economics policy perspective to the climate change and environmental issues.

This paper deals with global mitigation strategy. More specifically the main
purpose is to address the question of whether growth in the developing world is consistent with long-run climate change objectives. The answer I believe is yes.

The first part of this paper lays out time paths for emissions for countries in
various categories. These paths are consistent with countries’ growth objectives, incomes, and capacity to absorb mitigation costs. The intent is to show that while global emissions are likely to remain flat or even to rise as a result of the combined effect of mitigation undertaken by advanced countries and growth in the developing world, eventually reasonably safe global per capita levels can be reached on a 50‐year time horizon.

The second part of this paper discusses countries’ roles in relation to different categories and mechanisms that would support the achievement of safe emissions paths. These mechanisms create incentives and deal with the absorption of costs. In particular, the paper argues that a carbon credit trading system in the advanced countries, combined with an effective cross‐border mechanism and a “graduation” criterion for developing countries to join the advanced group, will create strong incentives, achieve a fair pattern of cost absorption, and support the dynamics described in part one. One point emerges clearly: the cross‐border mechanism (or international offsets) is essential in dealing with both the efficiency and the cost absorption/equity challenges of a global mitigation strategy.

I don’t have anything to comment as I know nothing about this subject. But this paper has provided me a start. Unlike the papers which look at how much the impact would be and how wrong this estimate is etc…this one is from a pure policy perspective. It introduces you to terminology used in the debate and the two policy options (mitigation vs adaptation).

We need much more research of this kind. The cimate change debate is too chaotic and there is just no clarity. This is true for much of economics but changes in climate/environment touches everybody. It needs to be understood properly avoiding the fancy talks.

India has got something right on this very important but ignored issue. It has a highly educated minister in Jairam Ramesh responsible for environment and forests. He knows economics and understands the challenges in public policy. So we surely expect a lot from him and his team. It might not be a bad idea for him to invite interns/trainees to work on these issues in India.

On going through the Ministry website, we can see some work happening. There are number of documents but we don’t really know what is happening on the ground level.

•  State of India Environemnt report has been printed in 2009 (last was published in 2001). The report is quite impressive and tells you about the challenges in each of the areas- air, water, forests etc.
• Then there is a very useful report which summarises findings of 45 modelling studies on climate change in India(see the ppt, press release).  
• Here is a list of 20 key initiatives taken by India on climate change.

So useful stuff at Ministry level. He can also appoint an economists team for an economic perspective or keep few economists in future reports/committees (though some may say keep them away as it would only lead to complications !!). But we need econs like Feldstein who has made national security such an interesting topic giving it an economics perpsective.

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