The integrated assessment models (IAMs) that economists use to analyze the expected costs and benefits of climate policies frequently suggest that the "optimal" policy is to go slowly and to do relatively little in the near term to reduce greenhouse gas emissions. We trace this finding to the contestable assumptions and limitations of IAMs. For example, they typically discount future impacts from climate change at relatively high rates. This practice may be appropriate for short-term financial decisions but its extension to intergenerational environmental issues rests on several empirically and philosophically controversial hypotheses. IAMs also assign monetary values to the benefits of climate mitigation on the basis of incomplete information and sometimes speculative judgments concerning the monetary worth
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Carbon pricing is a recurrent theme in debates on climate policy. Discarded at the 2009 COP in Copenhagen, it remained part of deliberations for a climate agreement in subsequent years. As there is still much misunderstanding about the many reasons to implement a global carbon price, ideological resistance against it prospers. Here, we present the main arguments for carbon pricing, to stimulate a fair and well‐informed discussion about it. These include considerations that have received little attention so far. We stress that a main reason to use carbon pricing is environmental effectiveness at a relatively low cost, which in turn contributes to enhance social and political acceptability of climate policy. This includes the property that corrected prices stimulate rapid environmental innovations. These arguments are underappreciated in the public debate, where pricing is frequently downplayed and the erroneous view that innovation policies are sufficient is widespread. Carbon pricing and technology policies are, though, largely complementary and thus are both needed for effective climate policy. We also comment on the complementarity of other instruments to carbon pricing. We further discuss distributional consequences of carbon pricing and present suggestions on how to address these. Other political economy issues that receive attention are lobbying, co‐benefits, international policy coordination, motivational crowding in/out, and long‐term commitment. The overview ends with reflections on implementing a global carbon price, whether through a carbon tax or emissions trading. The discussion goes beyond traditional arguments from environmental economics by including relevant insights from energy research and innovation studies as well. WIREs Clim Change 2017, 8:e462. doi: 10.1002/wcc.462
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Climate Economics > Economics of Mitigation
The question of how society is going to pay for restoration has received little open discussion. We review existing literature and examples to explore two questions: How should ecological and economic considerations be balanced in determining expenditures on restoration projects? and How is society going to pay for the substantial costs involved? We discuss a number of different techniques for determining the amount of money to allocate to restoration efforts, including ecosystem replacement costs, quantifying ecosystem services, contingent valuation, and surrogate market price techniques. We then review different strategies for paying for restoration including private funding by the party responsible for the damage, public funding through taxes, voluntary contributions, and various public/private partnerships. We conclude by discussing other considerations in developing strategies to pay for restoration, including uncertainty, time‐scale, evaluating success, and regional planning.
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