Economics of the Climate Crisis
From Common Energy UVic
The Economics of the Climate Crisis section is part of the Common Energy Knowledge Base, providing background information to inform the beyond climate-neutral plan and our actions and decisions in the future. When considering the economics of climate change it is important to understand that economics is both part of the solution, and part of the problem.
[edit] Stern Review on the economics of climate change
The UK government commissioned former chief economist of the World Bank, Sir Nicholas Stern, to examine the economics of climate change. Until Stern’s 700-page Stern Review on the economics of climate change[1] was released in October 2006, economic studies had generally concluded that the costs of taking action on global warming exceeded the benefits of avoiding climate change. Stern’s report rewrote the economic argument: he found that if the world failed to curb greenhouse gas emissions, the world faces economic disaster more costly then the combined economic cost of the great depression and both world wars. Stern also concluded that climate change “presents a unique challenge for economics: it is the greatest and widest-ranging market failure ever seen." In other words, mainstream economics is of limited usefulness in analyzing and understanding climate change.
[edit] The contribution of economics to climate change
There is another side to the relationship between climate change and economics that is critical to solving the climate crisis. Mainstream economics, as currently taught in most introductory economics courses at North American universities, and as used in standard economic analysis, presents a very flawed conception of the economy that fails to properly model the relationship between the economy and the biosphere upon which it depends.
Each year, 1.5 million North American undergraduate students will take an introductory economics course that will teach them that selfishness is rational and that will portray the economy as existing apart from the environment. With rare exceptions, departments follow a neoclassical economics curriculum and research agenda. Neoclassical economics: • is largely silent with respect to ecological limits • is built upon flawed conceptions of human motivations and misconstrues the determinants of human wellbeing, and assumes that ever more consumption and economic growth is desirable (which leads to more CO2 emissions).
This training in economics will influence students’ perspectives on societal problems and the decisions they will make after graduation as they take up positions of influence, impeding individuals and society at large from making decisions that better address sustainability and human wellbeing imperatives.
For this reason, as part of The Common Energy Conference - Finding Common Ground on the Climate Crisis, and as part of the goal of going beyond carbon neutral, the undergraduate economics curriculum at University of Victoria should be reviewed to see whether it impedes students from learning climate-relevant training and analysis. For instance, why are there no courses in ecological economics?
[edit] Solutions from economics
Economics can also help contribute solutions to the climate crisis. For instance, tax shifting, which shifts taxes from things that are desired by society (like more jobs) to bads (carbon emissions), offers the possibility of creating price signals that will reduce C02 emissions as companies and individuals. Carbon caps can also be implemented, as can other incentives for green technologies. Attention to distributional issues will be critically important.
