Geoscience Reference
In-Depth Information
18
CLIMATE POLICY BY BALANCING
COSTS AND BENEFITS
Chapter 17 concluded that a sensible target for climate-change policy
would require balancing abatement costs and climate damages. This
approach is often used by economists in analyzing different options and
is called cost-benefi t analysis. The basic idea is quite intuitive. In a world
of limited resources, we should make investments that produce the
greatest net social benefi ts—that is, ones that have the greatest margin
of social benefi ts over social costs.
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People perform cost-benefi t analysis all the time in their daily lives.
Sometimes, the calculations are straightforward. A neighborhood gaso-
line station is convenient, but it charges 10 cents per gallon more than
the station near the mall. Is the $2 saving from going to the mall worth
the extra time and gas to get there?
A more challenging choice involves selecting a college. Suppose you
have been accepted at three colleges and need to choose among them.
Not only do the economic costs differ, but the schools provide different
benefi ts. Some of the benefi ts are market returns, such as tuition and
postgraduate salary prospects. Others are nonmarket, such as the qual-
ity of student life, the climate, and the music. For some very rich stu-
dents, the costs are largely irrelevant, and they can focus solely on the
benefi ts. Most people, however, must take into account both costs and
benefi ts. Some of these benefi ts might be hard to monetize, or put in
dollar terms. But, at least implicitly, we put all costs and benefi ts onto the
scale when we choose among available options.
