Emissions trading is a market-based approach to controlling pollution by providing economic incentives for reducing the emissions of pollutants. The concept is also known as cap and trade (CAT) or emissions trading scheme (ETS). One prominent example is carbon emission trading for CO2 and other greenhouse gases which is a tool for climate change mitigation. Other schemes include sulfur dioxide and other pollutants.
A carbon tax is a tax levied on the carbon emissions required to produce goods and services. Carbon taxes are intended to make visible the "hidden" social costs of carbon emissions, which are otherwise felt only in indirect ways like more severe weather events. In this way, they are designed to reduce greenhouse gas emissions by increasing prices of the fossil fuels that emit them when burned. This both decreases demand for goods and services that produce high emissions and incentivizes making them less carbon-intensive. When a hydrocarbon fuel such as coal, petroleum, or natural gas is burned, most or all of its carbon is converted to CO2. Greenhouse gas emissions cause climate change, which damages the environment and human health. This negative externality can be reduced by taxing carbon content at any point in the product cycle. Carbon taxes are thus a type of Pigovian tax.
The International Energy Agency (IEA) is a Paris-based autonomous intergovernmental organisation, established in 1974, that provides policy recommendations, analysis and data on the entire global energy sector. The 31 member countries and 13 association countries of the IEA represent 75% of global energy demand.
Climate sensitivity is a measure of how much Earth's surface will warm for a doubling in the atmospheric carbon dioxide concentration. In technical terms, climate sensitivity is the average change in global mean surface temperature in response to a radiative forcing, which drives a difference between Earth's incoming and outgoing energy. Climate sensitivity is a key measure in climate science, and a focus area for climate scientists, who want to understand the ultimate consequences of anthropogenic global warming.
The Special Report on Emissions Scenarios (SRES) is a report by the Intergovernmental Panel on Climate Change (IPCC) that was published in 2000. The greenhouse gas emissions scenarios described in the Report have been used to make projections of possible future climate change. The SRES scenarios, as they are often called, were used in the IPCC Third Assessment Report (TAR), published in 2001, and in the IPCC Fourth Assessment Report (AR4), published in 2007. The SRES scenarios were designed to improve upon some aspects of the IS92 scenarios, which had been used in the earlier IPCC Second Assessment Report of 1995. The SRES scenarios are "baseline" scenarios, which means that they do not take into account any current or future measures to limit greenhouse gas (GHG) emissions.
Climate change mitigation is action to limit climate change. This action either reduces emissions of greenhouse gases or removes those gases from the atmosphere. The recent rise in global temperature is mostly due to emissions from burning fossil fuels such as coal, oil, and natural gas. There are various ways that mitigation can reduce emissions. These are transitioning to sustainable energy sources, conserving energy, and increasing efficiency. It is possible to remove carbon dioxide from the atmosphere. This can be done by enlarging forests, restoring wetlands and using other natural and technical processes. The name for these processes is carbon sequestration. Governments and companies have pledged to reduce emissions to prevent dangerous climate change. These pledges are in line with international negotiations to limit warming.
The economic analysis of climate change explains how economic thinking, tools and techniques are applied to calculate the magnitude and distribution of damage caused by climate change. It also informs the policies and approaches for mitigation and adaptation to climate change from global to household scales. This topic is also inclusive of alternative economic approaches, including ecological economics and degrowth. In a cost–benefit analysis, the trade offs between climate change impacts, adaptation, and mitigation are made explicit. Cost–benefit analyses of climate change are produced using integrated assessment models (IAMs), which incorporate aspects of the natural, social, and economic sciences. The total economic impacts from climate change are difficult to estimate, but increase for higher temperature changes.
Computable general equilibrium (CGE) models are a class of economic models that use actual economic data to estimate how an economy might react to changes in policy, technology or other external factors. CGE models are also referred to as AGE models.
Greenhouse gas inventories are emission inventories of greenhouse gas emissions that are developed for a variety of reasons. Scientists use inventories of natural and anthropogenic (human-caused) emissions as tools when developing atmospheric models. Policy makers use inventories to develop strategies and policies for emissions reductions and to track the progress of those policies.
The Stern Review on the Economics of Climate Change is a 700-page report released for the Government of the United Kingdom on 30 October 2006 by economist Nicholas Stern, chair of the Grantham Research Institute on Climate Change and the Environment at the London School of Economics (LSE) and also chair of the Centre for Climate Change Economics and Policy (CCCEP) at Leeds University and LSE. The report discusses the effect of global warming on the world economy. Although not the first economic report on climate change, it is significant as the largest and most widely known and discussed report of its kind.
Greenhouse gas (GHG) emissions from human activities intensify the greenhouse effect. This contributes to climate change. Carbon dioxide, from burning fossil fuels such as coal, oil, and natural gas, is one of the most important factors in causing climate change. The largest emitters are China followed by the United States. The United States has higher emissions per capita. The main producers fueling the emissions globally are large oil and gas companies. Emissions from human activities have increased atmospheric carbon dioxide by about 50% over pre-industrial levels. The growing levels of emissions have varied, but have been consistent among all greenhouse gases. Emissions in the 2010s averaged 56 billion tons a year, higher than any decade before. Total cumulative emissions from 1870 to 2017 were 425±20 GtC from fossil fuels and industry, and 180±60 GtC from land use change. Land-use change, such as deforestation, caused about 31% of cumulative emissions over 1870–2017, coal 32%, oil 25%, and gas 10%.
The social cost of carbon (SCC) is the marginal cost of the impacts caused by emitting one extra tonne of carbon emissions at any point in time. The purpose of putting a price on a ton of emitted CO2 is to aid policymakers or other legislators in evaluating whether a policy designed to curb climate change is justified. The social cost of carbon is a calculation focused on taking corrective measures on climate change which can be deemed a form of market failure. Latest studies calculate costs of more than US$300 per ton of CO2. The only governments which use the SCC are in North America. Because of politics the SCC is different from a carbon price. The Intergovernmental Panel on Climate Change suggested that a carbon price of $100/tCO2 could reduce global GHG emissions by at least half the 2019 level by 2030.
Carbon pricing is a method for nations to address climate change. The cost is applied to greenhouse gas emissions in order to encourage polluters to reduce the combustion of coal, oil and gas – the main driver of climate change. The method is widely agreed and considered to be efficient. Carbon pricing seeks to address the economic problem that emissions of CO2 and other greenhouse gases (GHG) are a negative externality – a detrimental product that is not charged for by any market.
Integrated assessment modelling (IAM) or integrated modelling (IM) is a term used for a type of scientific modelling that tries to link main features of society and economy with the biosphere and atmosphere into one modelling framework. The goal of integrated assessment modelling is to accommodate informed policy-making, usually in the context of climate change though also in other areas of human and social development. While the detail and extent of integrated disciplines varies strongly per model, all climatic integrated assessment modelling includes economic processes as well as processes producing greenhouse gases. Other integrated assessment models also integrate other aspects of human development such as education, health, infrastructure, and governance.
Carbon emission trading (also called carbon market, emission trading scheme (ETS) or cap and trade) is a type of emission trading scheme designed for carbon dioxide (CO2) and other greenhouse gases (GHG). It is a form of carbon pricing. Its purpose is to limit climate change by creating a market with limited allowances for emissions. This can lower competitiveness of fossil fuels and accelerate investments into low carbon sources of energy such as wind power and photovoltaics. Fossil fuels are the main driver for climate change. They account for 89% of all CO2 emissions and 68% of all GHG emissions.
The economics of climate change mitigation is a contentious part of climate change mitigation – action aimed to limit the dangerous socio-economic and environmental consequences of climate change.
Climate change scenarios or socioeconomic scenarios are projections of future greenhouse gas (GHG) emissions used by analysts to assess future vulnerability to climate change. Scenarios and pathways are created by scientists to survey any long term routes and explore the effectiveness of mitigation and helps us understand what the future may hold. This will allow us to envision the future of human environment system. Producing scenarios requires estimates of future population levels, economic activity, the structure of governance, social values, and patterns of technological change. Economic and energy modelling can be used to analyze and quantify the effects of such drivers.
Energy modeling or energy system modeling is the process of building computer models of energy systems in order to analyze them. Such models often employ scenario analysis to investigate different assumptions about the technical and economic conditions at play. Outputs may include the system feasibility, greenhouse gas emissions, cumulative financial costs, natural resource use, and energy efficiency of the system under investigation. A wide range of techniques are employed, ranging from broadly economic to broadly engineering. Mathematical optimization is often used to determine the least-cost in some sense. Models can be international, regional, national, municipal, or stand-alone in scope. Governments maintain national energy models for energy policy development.
Joseph Francois is a professor of international economics at the University of Bern, where he has taught since 2013. Since 2015, he is also the Managing Director of the World Trade Institute. He is co-director of the European Trade Study Group, which he co-founded in 1999. He is a research fellow of the Centre for Economic Policy Research (CEPR) and an at-large board member of the Global Trade Analysis Project (GTAP).
Green recovery packages are proposed environmental, regulatory, and fiscal reforms to rebuild prosperity in the wake of an economic crisis, such as the COVID-19 pandemic or the Global Financial Crisis (GFC). They pertain to fiscal measures that intend to recover economic growth while also positively benefitting the environment, including measures for renewable energy, efficient energy use, nature-based solutions, sustainable transport, green innovation and green jobs, amongst others.
