Adventures in Energy Economics
Adventures in Energy Economics
Robert P. MurphyMises AcademyJuly 16, 2013
Robert P. MurphyMises AcademyJuly 16, 2013
Lecture 3: The Economics of Climate Change, Part I
Lecture 3: The Economics of Climate Change, Part I
Economics of Climate Change, I
Economics of Climate Change, I
I. Review: Rothbard
A. Overview of Law
B. Applied to Pollution
II. Review: Free-Market Environmentalism
A. Endangered Species
B. Overfishing”Tragedy of the Commons”
III. Economics of Climate Change
A. IPCC
B. ECS
C. Integrated Assessment Models (IAMs)
D. “Social Cost of Carbon”
E. Regulations vs. “Market Solution”
F. Carbon Tax vs. Cap-and-Trade
I. Rothbardian ViewI. Rothbardian View
A. Overview of LawA. Overview of Law
Normative (not Positive)
Physical Invasion (not “harm”)
Strict Liability (not “reasonable person” standard)
B. Applied to PollutionB. Applied to Pollution
Actual victims (not D.A.) must bring suit.
Privity (in auto example)
Utilitarian considerations can’t trump justice
II. Free-Market Environmentalism
II. Free-Market Environmentalism
A. Endangered SpeciesA. Endangered Species
versus
B. Overfishing:“Tragedy of the Commons”
B. Overfishing:“Tragedy of the Commons”
Garret Hardin1915-2003
III. Economics of Climate Change (Mainstream View)
III. Economics of Climate Change (Mainstream View)
A. Intergovernmental Panel on Climate Change (IPCC)
A. Intergovernmental Panel on Climate Change (IPCC)
B. Equilibrium Climate Sensitivity (ECS)
B. Equilibrium Climate Sensitivity (ECS)
In climate models, the equilibrium (after all feedbacks) increase in global mean near-surface air temperature from a doubling of carbon dioxide atmospheric concentrations.
IPCC AR4 estimated ECS in range of 2 – 4.5 degrees Celsius, with a best estimate of 3 degrees.
C. Integrated Assessment Models (IAMs)
C. Integrated Assessment Models (IAMs)
D. “Social Cost of Carbon” (SCC)D. “Social Cost of Carbon” (SCC)
SCC Heavily Dependent on Discount Rate
SCC Heavily Dependent on Discount Rate
SOURCE: White House Working Group on SCC, May 2013 update
Because Early Benefits and Distant Harms!
Because Early Benefits and Distant Harms!
SOURCE: White House Working Group on SCC, 2010
E. Regulation vs. “Market Solution”
E. Regulation vs. “Market Solution”
f. Carbon Tax vs. Cap-and-Tradef. Carbon Tax vs. Cap-and-Trade
If government had perfect knowledge of “abatement costs” (marginal compliance cost of restricting an additional ton of emissions) and schedule of social cost of carbon (marginal benefits of avoided future climate change damages) then two approaches would be equivalent.
But with uncertainty, government might err and one approach will be preferable (minimize deadweight loss due to mistake) depending on cost curves.
Carbon Tax better if abatement costs steeper than climate change
damages
Carbon Tax better if abatement costs steeper than climate change
damages
Emission Reductions
Cap-and-Trade better if abatement costs Shallower than
climate change damages
Cap-and-Trade better if abatement costs Shallower than
climate change damages
Emission Reductions
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