9. Economics of climate change Flashcards
(12 cards)
What do we need to do when costs and benefits accrue at different times?
We need to consider discounting future costs and benefits to reflect peoples preferences
What is the discount rate?
The indifference between two net benefits separated by time determines an individuals discount rate
What does the discount rate show?
A discount rate is a number indicating how much a persons values, in the present a benefit or cost that occur in the future
What is the equation for future value?
FV = PV (1+i)
What are the two approaches to calculating discount rates?
Social opportunity cost of capital - Estimates discount rates based on observed behaviour
Social time preference - Based on ethical arguments about fundamental parameters
What are the two important charachteristics to think about with greenhouse gasses?
- They are a stock pollutant
- They are an externality
What is a flow pollutant?
Pollution whose impacts quickly dissipate; the rate of pollution flow creates harm
What is a stock pollutant?
Pollution which accumulates (and may dissipate) over time; the accumulated quantity creates harms
Where is the optimal level of pollution?
Where MC = MB (MAC = MD)
How should we calculate optimal pollution?
The marginal savings from pollution today shuld equal the sum of all marginal damages that this pollution causes in the future
Why is damage from climate change a dynamic story?
- Pollutants accumulate slowly in the atmosphere
- The bulk of impacts are far in the future
- Technology improves over time
What is a scientific method used for the optimal amount of mitigation?
Integrated assessment models
