Climate Economics in Four Easy Pieces

Abstract

Conventional economic analysis is rapidly replacing the arguments of the climate skeptics as the principal justification for inaction on climate change. It is important to create an alternative economics that is consistent with the urgency expressed by the latest climate science. Frank Ackerman presents four broad principles that are fundamental to a better analysis of climate economics. First, your grandchildren's lives are important; a low discount rate is needed to validate concern about far-future outcomes. Second, we need to buy insurance for the planet; prevention of catastrophic worst-case risks, not response to average, expected outcomes, should be the motivation for climate policy. Third, climate damages are too valuable to have prices; the impossibility of putting meaningful prices on human life, endangered species, and ecosystems defeats attempts at cost–benefit analysis of climate policy. Fourth, some costs are better than others; the ‘costs’ of active climate policies will create jobs, incomes, and new technologies, while avoiding the physical destruction of the much worse costs of an increasingly extreme climate.