Chat with us, powered by LiveChat To answer question #1: Refer to the “Tol 2008” PDF to answer question 1. Use public policy + econom | Max paper
  

To answer question #1: Refer to the “Tol 2008” PDF to answer question 1.

Use public policy + economics knowledge to answer questions 2, 3 & 4.

Questions 3 & 4 are longer answer questions (approx 300 words each)

Answers due Wednesday November 17th, 10pm Pacific Time.

Part I: Short Answers

1. (6 points) Tol (2018) describes two important conclusions from his review of climate
change impacts estimates. Briefly describe them, distinguishing between short- and
long-term where necessary.
1. ______________________________________________________________________
______________________________________________________________________
2. ______________________________________________________________________
______________________________________________________________________

2. (6 points) There are three main types of government action: 1) Influence private
production; 2) Provide social insurance and safety nets; 3) Produce public goods and
services. Provide an example that illustrates each type of potential government action
a. ______________________________________________________________________
______________________________________________________________________
b. ______________________________________________________________________
______________________________________________________________________
c. ______________________________________________________________________
______________________________________________________________________

Part II: Longer Answers

3. (12 points) Policy Scenario I

In the following short-run policy scenarios, explain how the policy described might cause a
shift of the supply and/or the demand curve in the market specified, using terms like
“outward/inward” or “up/down.”

Background: Currently, the safety, purity and efficacy of products known as ‘nutritional
supplements’ (e.g. vitamins, minerals, proteins etc.) are only loosely regulated in the U.S.

Scenario 1: In response to concerns for public safety, Congress passes strict new legislation
and provides funding for enforcement, including a ban on the import of any such products
from outside the country (including those sold online or in person).

Scenario 2: Strict new efficacy, safety and labelling standards for products manufactured in
the U.S. (similar to those applied to prescription only or over-the-counter medicines).

4. Policy Scenario II (12 points)

Some evidence suggests that firefighters may experience significantly higher lifetime risks of
certain cancers. This may be because they are frequently exposed to carcinogens in the
form of smoke from burning materials, particularly those containing plastics or other
manmade materials (externality). Workmen’s Compensation insurance claims to cover
job-related disability of this sort are often denied because individual cases cannot be
definitively tied to on-the-job conditions. Young people training for and entering the trade are
generally unaware of this potential hazard (information asymmetry) .

Describe at least 3 market failures underlying in the problems described above (information
asymmetry, externalities etc.), and describe policy approaches that might be appropriately
applied to solve each market failure you identify.

The Economic Impacts of
Climate Change

Richard S. J. Tol*

Introduction

For such a fractious discipline, there has been remarkable agreement among economists

concerning the first-best climate policy. Ever since the writings of Nordhaus (1977),

d’Arge (1979), and Schelling (1992), it has been widely accepted that climate change is, on

balance, a negative externality and that greenhouse gas (GHG) emissions should be priced,

preferably taxed. Although there continues to be a vigorous debate about climate targets in

the long-term (Stern et al. 2006; Nordhaus 2013), most economists agree that a sensible

climate policy starts modestly and then accelerates (Wigley, Richels, and Edmonds 1996’

Goulder and Mathai 2000). Despite this general agreement on the need to reduce GHG

emissions, the debate among economists about climate change has been unusually bitter,

perhaps as a reflection of the wider polarization of climate research and climate policy. In

particular, estimates of the marginal impact of climate change vary so widely that the initial

carbon price is more a matter of politics than economics.

The purpose of this article is to examine the economic impacts of climate change. More

specifically, I review estimates of the total economic impact of climate change and the dis-

tribution of those impacts around the world, discuss the interactions between economic

development and climate change, and review and analyze estimates of the social cost of

carbon (i.e., the Pigou tax). For each of these topics I discuss the state of the art with an

emphasis on key recent developments. I present a summary of my findings and a proposed

research agenda in the final section. I find that the total economic impacts of climate change

are negative, but modest on average, and that the severe impacts on less developed countries

are caused primarily by poverty. The impact of climate and climate change on economic

growth is poorly understood but could imply that current estimates are too optimistic.

Estimates of the social cost of carbon are very uncertain but are typically above observed

carbon prices.

*Department of Economics, University of Sussex, Falmer BN1 9SL, UK; Institute for Environmental Studies,
Vrije Universiteit, Amsterdam, The Netherlands; Department of Spatial Economics, Vrije Universiteit,
Amsterdam, The Netherlands; Tinbergen Institute, Amsterdam, The Netherlands; and CESifo, Munich,
Germany; Tel: +44-1273-877282; Email: [email protected]

David Anthoff, Doug Arent, Mike Mastandrea, and Brandon Shollenberger have been a great help in the
construction of Table 1. Three anonymous referees and Suzanne Leonard provided excellent comments.
All errors and opinions are mine.

Review of Environmental Economics and Policy, volume 12, issue 1, Winter 2018, pp. 4–25
doi: 10.1093/reep/rex027
Advance Access Published on January 12, 2018
VC The Author(s) 2018. Published by Oxford University Press on behalf of the Association of Environmental and Resource

Economists. All rights reserved. For Permissions, please email: [email protected]

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The Total Economic Impact of Climate Change

The impacts of climate change are many and diverse. Determining whether these impacts are

beneficial or detrimental, small or large, depends on the sector, location, and time being

considered. Unfortunately, a reading of the literature on the impacts of climate change (Field

and Canziani 2014) is likely to leave a lay reader confused. It is very difficult to make sense of

the many and different effects: crops hit by worsening drought, crops growing faster because

of carbon dioxide fertilization, heat stress increasing, cold stress decreasing, sea levels rising,

increasing energy demand for cooling, decreasing energy demand for heating, infectious

disease spreading, species going extinct. Thus we need aggregate indicators to assess whether

climate change is, on balance, a good thing or a bad thing and whether the climate problem is

small or large relative to the many other problems that society faces. I focus in this and the

next section on two aggregate indicators (Smith et al. 2001): the impact of climate change on

total economic welfare and the distribution of those welfare impacts.

Estimates of Impacts on Total Economic Welfare

There are currently 27 published estimates of the total economic impact of climate change

(measured in terms of welfare-equivalent income loss) contained in 22 studies (see table 1 and

figure 1).
1

To put these estimates in context, they indicate that a global mean temperature

increase of 2.5�C would make the average person feel as if she had lost 1.3 percent of her

income (1.3 percent is the average of the 11 impact estimates for warming of 2.5�C).

Pindyck (2013) argues that these estimates of the economic impact of climate change

have no foundation in economic theory. No estimate is perfect, but the existing estimates

use well-established and well-accepted methods.
2

Moreover, although the estimates in

table 1 and figure 1 are based on different methods, the results are consistent with each

other. We do not know the accuracy of these estimates, but this is true for any prediction

of the future. In a later paper, Pindyck (2017) argues for transparency and simplicity,

extrapolating into the far future, and deep tails without any detail on the processes in-

volved. Heal (2017) writes that current models are “not accurate enough to provide

quantitative insights” and, like Pindyck, calls for a more intuitive approach to climate

policy advice.

Clearly, 27 estimates are a thin basis for drawing definitive conclusions about the total

welfare impacts of climate change. Moreover, the 11 estimates for warming of 2.5�C indicate

that researchers disagree on the sign of the net impact: 3 estimates are positive and 8 are

1
A number of papers estimate the impact of weather on a range of economic indicators (Deschênes and
Greenstone 2007; Barreca 2012; Hsiang and Meng 2015; Hsiang et al. 2017). The key advantage of consid-
ering weather impacts is that weather is, from an economic perspective, random. The economic impact of
weather is therefore properly identified. Although some of these papers may suggest otherwise, the impact of
a weather shock is not the same as the impact of climate change. Climate is what you expect, while weather is
what you get. Adaptation to weather shocks is therefore limited to immediate responses: put up an umbrella
when it rains, close the flood doors when it pours. In contrast, adaptation to climate change extends to
changes in the capital stock: buy an umbrella, invest in flood doors. In other words, weather studies estimate
the short-run elasticity, but what we are interested in is the long-run elasticity. Thus, extrapolating the
impact of weather shocks to the impact of climate change is unlikely to lead to credible results.

2
See appendix A in the online supplementary materials for a discussion of the methods used to estimate the
total welfare impacts of climate change presented in table 1.

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negative. Thus it is unclear whether climate change will lead to a net welfare gain or loss. At the

same time, however, despite the variety of methods used to estimate welfare impacts,

researchers agree on the order of magnitude, with the welfare change caused by climate

change being equivalent to the welfare change caused by an income change of a few percent.

That is, these estimates suggest that a century of climate change is about as good/bad for

welfare as a year of economic growth.
3

Table 1 Estimates of the welfare impact of climate change

Study Warming (�C) Impact (% GDP)

Best SD Low High

d’Arge 1979 �1.0 �0.6
Nordhaus 1982 2.5 �3.0 �12.0 5.0
Nordhaus 1991 3.0 �1.0
Nordhaus 1994b 3.0 �1.3
Nordhaus 1994a 3.0 �3.6 �21.0 0.0

6.0 �6.7
Fankhauser 1995 2.5 �1.4
Berz undated 2.5 �1.5
Tol 1995 2.5 �1.9
Nordhaus and Yang 1996 2.5 �1.4
Plambeck and Hope 1996 2.5 �2.9 �13.1 �0.5
Mendelsohn et al. 2000 2.5 0.0

2.5 0.1

Nordhaus and Boyer 2000 2.5 �1.5
Tol 2002 1.0 2.3 1.0

Maddison 2003 2.5 0.0

Rehdanz and Maddison 2005 0.6 �0.2
1.0 �0.3

Hope 2006 2.5 �1.0 �3.0 0.0
Nordhaus 2006 3.0 �0.9 0.1

3.0 �1.1 0.1
Nordhaus 2008 3.0 �2.5
Maddison and Rehdanz 2011 3.2 �5.1
Bosello et al. 2012 1.9 �0.5
Roson and van der Mensbrugghe 2012 2.9 �2.1

5.4 �6.1
Nordhaus 2013 2.9 �2.0

Notes: Impact is measured as welfare-equivalent income loss and expressed as a percentage of income. Climate change is char-

acterized by the increase in the global annual mean surface air temperature. Estimates are best guesses (Best). Where available,

either the standard deviation (SD) of the estimate or an indication of the lower (low) and upper (high) bound of its confidence

interval is given. There are three differences between this table and the IPCC table (Arent et al. 2014). First, this table includes the

estimates by d’Arge, (1979). Second, to be consistent with the other estimates in the table, the Mendelsohn estimates are shown

against the area average temperature change rather than the population average. Third, to be consistent with the other estimates in

the table, the Maddison and Rehdanz estimate is shown in market exchange rate dollars rather than in purchasing power parity

dollars.

Source: Data are available at http://users.sussex.ac.uk/�rt220/totalimpactreep.xlsx.

3
This suggests that there are bigger problems facing humankind than climate change. For example, the people
of Greece lost a third of their income in five years’ time, arguably due to poor monetary policy. The people of
Syria lost even more in a shorter period. Climate change may not even be our biggest environmental
problem, as many people are killed by indoor and urban air pollution (WHO 2014).

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Considered together, the 27 estimates suggest that the welfare impacts of initial

warming are positive on net, while further warming will lead to net damages

(d’Arge, Schulze, and Brookshire 1982). This is illustrated by the solid line in figure 1.

Alternative specifications of the impact function are possible, but the piecewise linear

model of figure 1 is by far the best fit.
4

Some popular impact functions do not fit the data

at all.
5

The initially positive impacts do not imply that GHG emissions should be subsidized. As

shown in figure 1, the total impacts turn negative just below 1.7�C warming above prein-

dustrial levels. More importantly, the incremental impacts turn negative before that, around

1.1�C global warming. Because of the slow workings of the climate system and the long-lived

capital in the energy sector, it is likely that a warming of 2�C cannot be avoided; a warming of

1�C can certainly not be avoided. Thus the initial net benefits of climate change are sunk

benefits—that is, we will reap these benefits no matter what we do to our emissions. This

means that GHG emissions should be taxed, not subsidized.

-25.0

-22.5

-20.0

-17.5

-15.0

-12.5

-10.0

-7.5

-5.0

-2.5

0.0

2.5

5.0

-1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5

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Global warming (in degrees centrigrade)

Figure 1 The global total annual impact of climate change

Notes: Impact is expressed in welfare-equivalent income change as a function of the increase in the global

annual mean surface air temperature since preindustrial times. The dots represent the estimates reported in

table 1, the solid line indicates the best-fit piecewise linear function, and the dotted lines indicate the

95 percent confidence interval.

Source: Data are available at http://users.sussex.ac.uk/�rt220/totalimpactreep.xlsx.

4
Table B1 in the online supplementary materials presents alternative specifications and how they fare when
fitted to the data of table 1, an exercise that should be done more often in climate economics. Note that the
parabolic function of Tol (2009) provides the second-best fit.

5
For example, although Weitzman (2011) argues that the climate change impact function is very nonlinear,
with a sharp turn towards large damages at higher temperatures, this is not supported by the estimates
shown in table 1 and figure 1.

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Impact of Uncertainty

The uncertainty about the estimates of the impact of climate change on total economic

welfare is rather large. The dotted lines in figure 1, which are derived from the few standard

errors reported in table 1, depict the 95 percent confidence interval. However, given that

experts tend to be overconfident (Lichtenstein and Fischhoff 1977) and the 27 estimates were

derived by a group of researchers who know each other well, this is probably an

underestimate of the true uncertainty. If we take the confidence interval at face value, the

impact of climate change does not significantly deviate from zero until 3.5 �C warming.

It is important to note, however, that the uncertainty indicated in figure 1 is right-skewed.

That is, negative surprises are more likely than positive surprises of similar magnitude. This is

true for both GHG emissions and the climate itself. For example, it is easier to imagine a

world that burns a lot of coal than a world that rapidly switches to wind and solar power

(Nakicenovic and Swart 2001; van Vuuren et al. 2011; Clarke et al. 2014). Feedbacks that

accelerate climate change are likely to be stronger than feedbacks that dampen warming (Roe

and Baker 2007; Knutti and Hegerl 2008; Lewis 2013). Furthermore, the impacts of climate

change are typically found to be more than linear. That is, if climate change doubles, its

impacts more than double (see figure 1). Many researchers have painted dismal scenarios of

climate change (Myers 1993; Chalko 2001; Stern et al. 2006; Potsdam Institute for Climate

Impact Research and Climate Analytics 2012; Oppenheimer et al. 2014). However, no one has

credibly suggested that climate change will make us all blissfully happy. In light of these

uncertainties and asymmetries, the earlier conclusion that a century of climate change is

about as good/bad for welfare as a year of economic growth needs to be rephrased: A century

of climate change is likely to be no worse than losing a decade of economic growth.

Distribution of Impacts

Thirteen of the twenty-two studies listed in table 1 include estimates of the regional impacts of

climate change and, in the case of the Maddison (2003), Rehdanz and Maddison (2005), and

Maddison and Rehdanz (2011), national impact estimates. These estimates indicate that

poorer and hotter countries are notably more vulnerable to climate change than richer ones.
6

As shown in figure 2, for global warming of 2.5�C, the expected impacts for the majority of

countries are more negative than in figure 1, where the global total impact is�1.4 percent of gross
domestic product. This is because the world economy is concentrated in a few rich countries.

7

Figure 2 also shows that, by and large, the negative impacts of climate change will be borne by

developing economies. Contrary to what is assumed in some studies (Hoel and Sterner 2007;

Sterner and Persson 2008), the relative impacts of climate change decline as per capita income rises.

Developing countries are more vulnerable to the impacts of climate change for three

reasons. First, poorer countries are more exposed to the weather because of the important

role of agriculture and water resources in the economy. In contrast, richer countries have a

larger share of their economic activities in manufacturing and services, which are typically

shielded (to some extent) from the vagaries of weather and hence climate change.

6
See appendix C in the online supplementary materials for a description of the methods used.

7
Note also that the world average in figure 1 counts dollars, rather than countries, let alone people.

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5

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100 1,000 10,000 100,000

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Income (in 2005 dollar per person per year)

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Temperature (in degrees centrigrade)

Figure 2 The national total annual impact of climate change

Notes: Impact is expressed in welfare-equivalent income change for a 2.5 �C global warming (relative to
preindustrial times) as a function of per capita income (top panel) and temperature (bottom panel). In the top

panel, countries are ranked from low to high per capita income (in 2005); in the bottom panel, the ranking is

by average annual temperature.

Source: Data are available at http://users.sussex.ac.uk/�rt220/totalimpactreep.xlsx.

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Second, poorer countries tend to be in hotter places. This means both that ecosystems are

closer to their biophysical upper limits and that there are no analogues for human behavior

and technology. That is, if the hottest places on the planet become even hotter, there are no

existing examples to learn from; new technologies will have to be developed and behavior will

have to be adjusted by trial and error. In contrast, Great Britain’s future climate may become

like Spain’s current climate, and the people of Britain would likely adopt some of the behav-

iors and technologies of the people of Spain.

Third, poorer countries tend to have a limited adaptive capacity (Adger 2006; Yohe and Tol

2002), which depends on a range of factors, such as the availability of technology and the ability to

pay for those technologies. Poorer countries often lack access to modern technology and insti-

tutions that can help protect against the weather (e.g., air conditioning, malaria medicine, crop

insurance). They may also lack the ability, and sometimes the political will, to mobilize the

resources for large-scale infrastructure—irrigation and coastal protection, for example.

Development and Climate Policy

There are two options for mitigating the excessive impact of climate change on the poor:

reduce climate change and/or reduce poverty. However, the relationship between poverty

and vulnerability to climate change is not simple, as I illustrate with some examples below.

Coastal Protection

Bangladesh and the Netherlands are both densely populated, low-lying countries at risk from

flooding by river and sea. However, Bangladesh is much more vulnerable to climate change. The

Netherlands started its modern, large-scale dike building program in 1850 (Tol and Langen 2000).

Before that, dike building was local and primitive and the country was regularly plagued by

floods. In 1850, the Netherlands was somewhat richer than Bangladesh is now (purchasing power

parity $2400 versus $1400 per person per year), but dike-building technology has improved since

then. The main difference between the Netherlands in 1850 and Bangladesh in 2014 is political. In

1849, the Netherlands had a powerful central government broadly representative of the

population, which prioritized flood protection. In contrast, Bangladesh is one of the most corrupt

and poorly governed countries in the world.
8

Floods primarily affect the poor, who live in the river

and coastal flats where land is cheap (Brouwer et al. 2007). There is no political reason to protect

the poor because votes can be bought
9

and floods are seen as an act of Allah (Alam 1990). This

makes Bangladesh more vulnerable to climate change than the Netherlands.

Agriculture

Climate change could reduce crop yields in Africa by up to 50 percent (Porter et al. 2014).

Yields from subsistence farms are often only one-tenth of what is achieved at model farms that

have the same soil and climate (Mueller et al. 2012). This so-called yield gap is caused by

8
See https://www.transparency.org/news/feature/corruption_perceptions_index_2016.

9
See http://bdnews24.com/economy/2015/04/27/bangladesh-bank-suspends-mobile-banking-to-prevent-
vote-buying-in-city-polls.

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factors such as a lack of access to irrigation, high-quality seeds, and pesticides, but the un-

derlying causes include a lack of access to capital and product markets due to poor roads and

insecure land tenure (Dorward et al. 2004; Foley et al. 2011). Modernizing agriculture would

close this yield gap and make African agriculture less vulnerable to climate change

(Mendelsohn and Dinar 1999; Howden et al. 2007).

Malaria

Malaria was endemic in large parts of Europe and North America (Hay et al. 2004). Habitat

reduction, mosquito control, and medicine turned malaria into a tropical disease. Climate

change would spread malaria since the parasite is more vigorous in hot weather and mos-

quitoes thrive in hotter and wetter places (Martens, Jetten, and Focks 1997; van Lieshout et al.

2004). However, malaria is first and foremost a disease of poverty (Tol and Dowlatabadi 2001;

Tol, Ebi, and Yohe 2007). Investments in insecticides, bed nets, and vaccine development

have the potential to ensure a malaria-free world, regardless of climate (Cotter et al. 2013;

Seder et al. 2013).

Implications for Research and Policy

These three examples—coastal protection, agriculture, and malaria—illustrate that develop-

ment and vulnerability to climate change are closely intertwined. Although this was first

discussed by Schelling (1992), many studies have ignored this relationship, assuming that

vulnerability is constant (Burke et al. 2016).

Concentrating GHG emissions reductions in rich countries will not solve the climate

problem, while slowing economic growth in poor countries to reduce climate change may

do more harm than good (Tol 2005a; Anthoff and Tol 2012). One-fifth of official develop-

ment aid is now aimed at climate policy (Michaelowa and Michaelowa 2007; Tol 2014),

although there has been some relabeling of conventional aid as climate aid (Michaelowa

and Michaelowa 2011). Cheap and abundant energy fuelled the industrial revolution (Stern

and Kander 2012), and a lack of (reliable) electricity retards growth in poor countries

(Chontanawat, Hunt, and Pierse 2008; Steinbuks and Foster 2010). Yet some donors no

longer support the use of coal, the cheapest way to generate electricity, or indeed any other

fossil fuel. Energy poverty alleviation and carbon dioxide emission reduction may be con-

tradictory goals (Chakravarty and Tavoni 2013). Climate policy could thus increase the

impacts of climate change in poor countries.

The disproportionate impacts of climate change on the most vulnerable is a good reason to

reduce GHG emissions. However, it is odd to express great concern about the plight of the

poor when it comes to climate but not in other policy domains (Schelling 1992, 2000). Levels

of charitable giving and official development aid suggest a low level of inequity aversion

between countries (Tol 2010). Barriers to international trade (Winters, McCulloch, and

McKay 2004; Hertel et al. 2009; Winters and Martuscelli 2014) and labor migration

(Lipton 1980; Adams and Page 2005) suggest a disregard for the poor in other countries.

The disconnect between climate and other policies and the implied concern for people in

poor countries may be interpreted in one of two ways: concern about the impact of climate

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change on the global poor is exaggerated, or our aid, trade, and migration policies need

reform.
10

Development and Climate Change

In addition to its comparative static impacts (see figure 1), climate change affects the growth

rate of the economy (Fankhauser and Tol 2005; Hallegatte 2005; Eboli, Parrado, and Roson

2010; Bretschger and Valente 2011; Lemoine and Kapnick 2016). Climate change may affect

the size and productivity of the labor force and the capital stock, which would affect invest-

ment and hence future output. Dietz and Stern (2015), Moyer et al. (2014), and Moore and

Diaz (2015) conjecture, without evidence, that climate change would also affect technological

progress, which would have a large effect on economic growth (Solow 1956).
11

If true, the

dynamic impacts of climate change would dominate the static ones.

There is empirical evidence that climate change has an impact on economic growth. Dell,

Jones, and Olken (2009) and Horowitz (2009) find that higher temperatures would reduce

income, particularly in poor countries (Dell, Jones, and Olken 2012). Barrios, Bertinelli, and

Strobl (2010) and Brown et al. (2011) find a large impact of anomalous rainfall on economic

growth in sub-Saharan Africa. Bloom, Canning, and Sevilla (2003) find that hot and wet

conditions and large variability in rainfall reduce long-term growth in poor countries (but

not in hot ones) and increase the probability of being poor. With the exception of Burke,

Hsiang, and Miguel (2015), these studies find relatively small effects.

The impact of climate (rather than climate change) on development is a subject of active

debate and research (Bhattacharyya 2009; Dell, Jones, and Olken 2014). The implications for

climate change are unclear, as the findings are mixed. Some argue that geography is the main

cause of (under)development in the past (Diamond 1999; Olsson and Hibbs 2005), and

presumably in the future. Others emphasize the links between climate and disease (Gallup,

Sachs, and Mellinger 1999) and climate and agriculture (Masters and McMillan 2001). If

differences in human institutions are accounted for, the apparent influence of climate on

development disappears in some studies (Acemoglu, Johnson, and Robinson 2001, 2002;

Easterly and Levine 2003)
12

but not in others (Alsan 2015). Some argue that the reported

impact of climate on development is actually an impact of ultraviolet radiation (Andersen,

Dalgaard, and Selaya 2016).

In sum, the literature on the impact of climate (change) on development has yet to reach

firm conclusions. Climate change could reduce the rate of economic growth and even trap

people in poverty. If this occurs, then the dynamic impacts could be larger than the static ones

reviewed earlier, which means the social cost of carbon would be (much) higher.

10
Alternatively one may argue, as one referee does, that GHG emissions are categorically different from other
actions and inactions that cause harm to others and therefore the observed indifference in other policy
domains does not apply to climate policy.

11
See Bell and Gersbach (2013) for an analysis of an alternative mechanism through which disease and
human capital formation affect economic growth.

12
Climate affects human culture, at least in poor countries, and thus institutions (van de Vliert 2008; van de
Vliert and Tol 2014).

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/reep/article-abstract/12/1/4/4804315 by U

niversity of O
regon Libraries user on 01 O

ctober 2019

The Social Cost of Carbon

The social cost of carbon is the incremental impact of emitting an additional ton of carbon

dioxide, or the benefit of slightly reducing emissions. When evaluated along an optimal

emissions trajectory, the social cost of carbon is the Pigou tax (Pigou 1920), that is, the

amount GHG emissions should be taxed in order to …

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