DRAFT of 5/21/09

The problem of global climate change poses a policy challenge of unprecedented scale and complexity. A number of features of the climate problem conspire to favor inertia—doing nothing, or doing too little too late. Of course, the option of “doing nothing ” is illusory; the choice is really between doing something now to mitigate the greenhouse effect, and forcing future generations to do something to adapt to the consequences over the coming centuries. Contrary to claims one sometimes hears that efforts to limit greenhouse gases will be largely painless, paying for themselves in terms of improved efficiency and new “green ” jobs, preventing the potentially catastrophic effects of dramatic global warming will in reality require significant sacrifices of wellbeing by the present generations. The goal of sensible climate policy must be to implement the necessary changes with minimal pain, paying particular attention to the impact on the poorer and more vulnerable elements of the world population. This section discusses some of the general considerations in analyzing the benefits and costs of climate change policy, and then explains and compares important policy alternatives, such as regulation or subsidization of energy sources, the carbon tax, and cap-and-trade programs. 1. Climate change as an environmental problem: commonality and uniquenes