Geoscience Reference
In-Depth Information
intensive and should therefore be used more sparingly. Second, it will
provide signals to producers about which inputs are carbon intensive
(such as coal and oil) and which use less or no carbon (such as natural
gas or wind power), thereby inducing fi rms to move to low-carbon tech-
nologies. Third, it will give market incentives for inventors, innovators,
and investment bankers to invent, fund, develop, and introduce new
low-carbon products and processes. Finally, a carbon price will econo-
mize on the information that is required to undertake all these tasks.
Part IV examines the central questions of climate-change policy:
How sharply should countries reduce CO
2
and other GHG emissions?
What should be the time profi le of emissions reductions? How should the
reductions be distributed across industries and countries? What policy
tools—taxes, market-based emissions caps, regulations, or subsidies—
are most effective?
It is tempting to set climate objectives as hard targets based on
climate history or ecological principles. The simple target approach is
unworkable because it ignores the costs of attaining the goals. Econo-
mists advocate an approach known as cost-benefi t analysis, in which
targets are chosen by balancing costs and benefi ts.
Because the mechanisms involved in climate change and impacts are
so complex, economists and scientists rely on computerized integrated
assessment models to project trends, assess policies, and calculate costs
and benefi ts. One major fi nding of integrated assessment models is that
policies to slow emissions should be introduced as soon as possible. The
most effective policies are ones that equalize the incremental or mar-
ginal costs of reducing emissions in every sector and every country.
Effective policies should have the highest possible “participation”; that
is, the maximum number of countries and sectors should be on board
as soon as possible. Free riding should be discouraged. Moreover, an
effective policy is one that ramps up gradually over time—both to
give people time to adapt to a high-carbon-price world and to tighten
the screws increasingly on carbon emissions.
While all approaches agree on the three central principles—universal
participation, equalizing marginal costs in all uses in a given year, and in-
creasing stringency over time—there are big differences among analysts
