Environmental and Resource Economics

, Volume 11, Issue 3, pp 301–315

Are Optimal CO2 Emissions Really Optimal?

  • Christian Azar

DOI: 10.1023/A:1008235326513

Cite this article as:
Azar, C. Environ Resource Econ (1998) 11: 301. doi:10.1023/A:1008235326513


Although the greenhouse effect is by many considered as one of the most serious environmental problems, several economic studies of the greenhouse effect, most notably Nordhaus's DICE model, suggest that it is optimal to allow the emissions of greenhouse gases (GHG) to increase by a factor of three over the next century. Other studies have found that substantial reductions can be justified on economic grounds. This paper explores into the reasons for these differences and identifies four (partly overlapping) crucial issues that have to be dealt with when analysing the economics of the greenhouse effect: low-probability but catastrophic events; cost evaluation methods; the choice of discount rate; the choice of decision criterion. The paper shows that (i) these aspects are crucial for the policy conclusions drawn from models of the economics of climate change, and that (ii) ethical choices have to be made for each of these issues. This fact needs wider recognition since economics is very often perceived as a value neutral tool that can be used to provide policy makers with “optimal” policies.

climate changecost-benefit analysisdecision criteriondiscount rateweight factorsJEL classification: D61, D62, D63

Copyright information

© Kluwer Academic Publishers 1998

Authors and Affiliations

  • Christian Azar
    • 1
  1. 1.Institute of Physical Resource TheoryChalmers University of Technology, Göteborg UniversityGöteborgSweden