Environmental and Resource Economics

, Volume 1, Issue 3, pp 237–270 | Cite as

The greenhouse effect: Damages, costs and abatement

  • Robert U. Ayres
  • Jörg Walter

Abstract

The buildup of so-called “greenhouse gases” in the atmosphere — CO2 in particular-appears to be having an adverse impact on the global climate. This paper briefly reviews current expectations with regard to physical and biological effects, their potential costs to society, and likely costs of abatement. For a “worst case” scenario it is impossible to assess, in economic terms, the full range of possible non-linear synergistic effects. In the “most favorable” (although not necessarily “likely”) case (of slow-paced climate change), however, it seems likely that the impacts are within the “affordable” range, at least in the industrialized countries of the world. In the “third world” the notion of affordability is of doubtful relevance, making the problem of quantitative evaluation almost impossible. We tentatively assess the lower limit of quantifiable climate-induced damages at $30 to $35 per ton of “CO2 equivalent”, worldwide, with the major damages being concentrated in regions most adversely affected by sea-level rise. The non-quantifiable environmental damages are also significant and should by no means be disregarded.

The costs and benefits of (1) reducing CFC use and (2) reducing fossil fuel consumption, as a means of abatement, are considered in some detail. This strategy has remarkably high indirect benefits in terms of reduced air pollution damage and even direct cost savings to consumers. The indirect benefits of reduced air pollution and its associated health and environmental effects from fossil-fuel combustion in the industrialized countries range from $20 to $60 per ton of CO2 eliminated. In addition, there is good evidence that modest (e.g. 25%) reductions in CO2 emissions may be achievable by the U.S. (and, by implication, for other countries) by a combination of increased energy efficiency and restructuring that would permit simultaneous direct economic benefits (savings) to energy consumers of the order of $50 per ton of CO2 saved. A higher level of overall emissions reduction — possibly approaching 50% — could probably be achieved, at little or not net cost, by taking advantage of these savings.

We suggest the use of taxes on fossil fuel extraction (or a carbon tax) as a reasonable way of inducing the structural changes that would be required to achieve significant reduction in energy use and CO2 emissions. To minimize the economic burden (and create a political constituency in support of the approach) we suggest the substitution of resource-based taxes in general for other types of taxes (on labor, income, real estate, or trade) that are now the main sources of government revenue. While it is conceded that it would be difficult to calculate the “optimal” tax on extractive resources, we do not think this is a necessary prerequisite to policy-making. In fact, we note that the existing tax system has never been optimized according to theoretical principles, and is far from optimal by any reasonable criteria.

Key words

Atmosphere benefits carbon climate conservation damages emissions energy greenhouse policy 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Arthur, W. Brian (1988), Competing Technologies and Lock-In by Historical Small Events: The Dynamics of Allocation under Increasing Returns, Research Paper (43), Committee for Economic Policy Research, Stanford University, Palo Alto CA.Google Scholar
  2. Arthur, W. Brian (1988), ‘Competing Technologies: an Overview’, in Dosi et al. (eds.), Technical Change and Economic Theory: 590–607, Pinter Publishers, London.Google Scholar
  3. Arthur, W. Brian et al. (1987), ‘Path-dependent Processes and the Emergence of Macro-structure’, European Journal of Operations Research 30, 294–303.Google Scholar
  4. Arthur, W. Brian, Yu M. Ermoliev, and Yu M. Kaniovski (1987), Non-Linear Urn Processes: Asymptotic Behavior and Applications, Working Paper (WP-87–85), International Institute for Applied Systems Analysis, Laxenburg, Austria.Google Scholar
  5. Batie, S. S. and H. H. Shugard (1990), ‘The Biological Consequences of Climate Changes: An Ecological and Economic Assessment’, in Rosenberg (ed.), Greenhouse Warming: Abatement and Adaptation: 121–132, Resources for the Future, Washington DC.Google Scholar
  6. Benkovitz, C. (1982), ‘Compilation of an Inventory of Anthropogenic Emissions in the United States and Canada’, Atmospheric Environment 16 (6), 1551–1563.Google Scholar
  7. Berndt, E. R., M. Manove, and D. O. Wood (1981), A Review of the Energy Productivity Center's “Least-Cost Energy Strategy” Study, Massachusetts Institute of Technology, Cambridge, MA.Google Scholar
  8. Bolin, Burt, Bo R. Döös, and Jill Jaeger (1986), The Greenhouse Effect, Climatic Changes and Ecosystems, John Wiley and Sons, Chichester.Google Scholar
  9. Brundtland, G. H. (ed.) (1987), Our Common Future, Oxford University Press, New York, (Report of the WCED.)Google Scholar
  10. Crocker, T. (1979), Experiments in the Economics of Air Pollution Epidemiology, Report (66/5–79001a), United states Environmental Protection Agency, Washington DC.Google Scholar
  11. Crosson, Peter R. (1990), ‘Climate Change: Problems of Limits and Policy Responses’, in Rosenberg (ed.), Greenhouse Warming: Abatement and Adaptation, 69–82, Resources for the Future, Washington DC.Google Scholar
  12. David, Paul A. (1985), ‘Clio and the Economics of QWERTY’, American Economic Review (Papers and Proceedings) 75, 332–337.Google Scholar
  13. D'Errico, Emilio, Pierluigi, Martini, and Pietro Tarquini (1984), Interventi di risparmio energetico nell'industria, Report, ENEA, Italy.Google Scholar
  14. Edmonds, J. and J. M. Reilly (1985), Global Energy—Assessing the Future, Oxford University Press, New York.Google Scholar
  15. Edmonds, J. and J. M. Reilly (1985d). ‘Future Global Energy and Carbon Diocide Emissions’, in Trabalka (ed.), Atmospheric Carbon Dioxide and the Global Carbon Cycle (DOE/ER-039), National Technical Information Service, Springfield VA.Google Scholar
  16. Euler, H. (1984), Umweltverträglichkeit von Energiekonzepten, Planungsgrundlagen für die Erstellung von umweltorientierten örtlichen und regionalen Energieversorgungskonzepten, Bonn, FRG.Google Scholar
  17. Ewers, H. J. et al. (1986), Methodische Probleme der monetären Bewertung eines komplexen Umweltschadens — Das Beispiel des Waldschadens in der Bundesrepublik Deutschland, Report (FB 101 03086), Bundesrepublik Deutschland Umweltbundesamt, Berlin.Google Scholar
  18. Frederick, K. D. and Peter H. Gleick (1990), ‘Water Resources and Climate Change’, in Rosenberg (ed.), Greenhouse Warming: Abatement and Adaptation, 133–146, Resources for the Future, Washington DC.Google Scholar
  19. Freeman, A. Myrick III (1979), The Benefits of Environmental Improvement: Theory and Practice, Johns Hopkins University Press, Baltimore.Google Scholar
  20. Freeman, Christopher (1982), The Economics of Industrial Innovation, MIT Press, Cambridge MA, 2nd edition.Google Scholar
  21. Gaines, L. et al. (1979), TOSCA: The Total Social Cost of Coal and Nuclear Power, Ballinger Publishing Company, Cambridge, MA.Google Scholar
  22. Glantz, M. H. (1988), ‘Societal Response to Regional Climate Change: Forecasting by Analogy’, in Glantz (ed.), Workshop, Boulder CO.Google Scholar
  23. Grupp, H. G. (1986), ‘Die sozialen Kosten des Verkehrs’, Verkehr und Technik, Heft 9, pp. 359–366 and Heft 10, pp. 403–407.Google Scholar
  24. Hausman, Jerry A. (1979), ‘Individual Discount Rates and the Purchase and Utilization of Energy-using Durables’, Bell Journal of Economics 10 (1), 33–54.Google Scholar
  25. Heinz, I (1986), Zur ökonomischen Bewertung von Materialschäden durch Luftverschmutzung, Umweltamt.Google Scholar
  26. Hekstra, G. P. (1990), ‘Sea-Level Rise: Regional Consequences and Responses’, in Rosenberg (ed.), Greenhouse Warming: Abatement and Adaptation, 53–68, Resources for the Future, Washington DC.Google Scholar
  27. Hohmeyer, Olav (1988), Social Costs of Energy Consumption, Springer-Verlag, Heidelberg FRG.Google Scholar
  28. Houghton, Richard A. and George M. Woodwell (1989), ‘Global Climatic Change’, Scientific American 260 (4), 36–44.Google Scholar
  29. Isecke, B. (1986), Einfluss von Luftveruntreinigungen auf das Korrosionsverhalten verschiedener Materialien, Umweltamt.Google Scholar
  30. Jacobson, J. (1989), Abandoning Homeland in State of the World 1989, World Watch Institute, Washington DC.Google Scholar
  31. Lave, Lester and E. Seskin (1971), Air Pollution and Human Health, Johns Hopkins University Press, Baltimore.Google Scholar
  32. Lovins, Amory B. et al. (1981), Least-Cost Energy: Solving the CO 2 Problem, Brickhouse Publication Co., Andover MA.Google Scholar
  33. Manne, Alan S. (1981), ETA-MACRO: A User's Guide, Report (EA-1724), Electric Power Research Institute, Palo Alto CA.Google Scholar
  34. Manne, Alan S. and Richard G. Richels (1990), ‘Global CO2 Emission Reductions: The Impacts Rising Energy Costs’, in Yerrari Tester and Woods (eds.), Energy and the Environment in the 21 st Century, MIT Press, Cambridge MA.Google Scholar
  35. Manne, Alan S., Richard G. Richels, and J. P. Weyant (1979), ‘Energy Policy Modeling: A Survey, Operations Research Society of America’, ORSA J. Google Scholar
  36. Miller, J. (1989), ‘Chinese Bring Chill to Backers of Ozone Protocol’, New Scientist, 11, 28.Google Scholar
  37. Mintzer, Irving M. (1987), A Matter of Degress: The Potential for Controlling the Greenhouse Effect, Research Report (5), World Resources Institute, Washington DC, April 1987.Google Scholar
  38. Myers, N. (1989), ‘The Environmental Basis of Sustainable Development’, in Scramm and Warford (eds.), Environmental Management and Economic Development, Johns Hopkins University Press, Baltimore.Google Scholar
  39. Nelson, Kenneth E. (1989), ‘Are There Any Energy Savings Left?’, Chemical Processing.Google Scholar
  40. Nordhaus, William D. (1973), ‘The Allocation of Energy Resources’, Brookings Papers on Economic Activity 3.Google Scholar
  41. Nordhaus, William D. (1975), ‘The Demand for Energy: An International Perspective’, in Nordhaus (ed.), Workshop on Energy Demand, International Institute for Applied Systems Analysis, Laxenburg, Austria.Google Scholar
  42. Nordhaus, William D. (1989), ‘The Economics of the Greenhouse Effect’, in International Energy Workshop, International Institute for Applied Systems Analysis, Laxenburg, Austria.Google Scholar
  43. Nordhaus, William D. (1990), ‘Economic Policy in the Face of Global Warming’, in Ferrari Tester, and Woods (eds.), Energy and the Environment in the 21st Century, MIT Press, Cambridge MA.Google Scholar
  44. Nordhaus, William D. and Gary Yohe, (1983), ‘Future Carbon Dioxide Emissions from Fossil Fuels’, in Changing Climate, National Academy Press. (National Research Council-National Academy of Sciences.)Google Scholar
  45. Olson, Mancur (1988), ‘The Productivity Slowdown, the Oil Shocks, and the Real Cycle’, Journal of Economic Perspectives 2 (4), 43–69.Google Scholar
  46. Parrish, E. M. (1963), Effects of Air Pollution Property Damages and Visibility, Pennsylvania Air Pollution Control Institute, Harrisbury PA.Google Scholar
  47. Pool, R. (1988), ‘The Elusive Replacements for CFCs’, Science 242, 666–668.Google Scholar
  48. Ramanathan, V. (1988), ‘The Radiative and Climate Consequences of the Changing Atmospheric Composition of Trace Gases’, in Rowland and Isaksen (eds.), The Changing Atmosphere, John Wiley, USA.Google Scholar
  49. Ranney, J. W., L. L. Wright, and P. A. Layton (1987), ‘Hardwood Energy Crops: The Technology of Intensive Culture’, Journal of Forestry 85, 17–28.Google Scholar
  50. Renner, M. (1989), Enhancing Global Security in State of the World 1989, World Watch Institute, New York.Google Scholar
  51. Robin, G. de Q. (1986), ‘Changing the Sea Level’, in Bolin et al. (eds.), The Greenhouse Effect, Climatic Change and Ecosystems, John Wiley and Sons, Chichester UK.Google Scholar
  52. Robinson, John B. (1987), ‘An Embarrassment of Riches: Canada's Energy Supply Resources’, Energy 12 (5), 379–402.Google Scholar
  53. Robinson, John B. (1987), ‘Insurmountable Opportunities? Canada's Energy Efficiency Resources’, Energy 12 (5), 403–417.Google Scholar
  54. Ross, M. et al. (1975), Effective Use of Energy: A Physics Perspective, Technical Report, American Physical Society (Summer Study on Technical Aspects of Efficient Energy Utilization).Google Scholar
  55. Sant, R. W. (1979), The Least-Cost Energy Strategy: Minimizing Consumer Costs Through Competition, Report (55), Mellon Institute Energy Productivity Center, VA.Google Scholar
  56. Schipper Lee (1989), ‘Energy Efficiency in an Era of Apparrent Energy Stability: Progress, Plateau, or Passé?’, in International Energy Workshop, International Institute for Applied Systems Analysis, Laxenburg, Austria.Google Scholar
  57. Schneider, Stephen H. (1989), ‘The Changing Climate’, Scientific American 216 (3), 38–47.Google Scholar
  58. Schneider, Stephen H. (1989a), ‘The Greenhouse Effect: Sciences and Policy’, Science 243.Google Scholar
  59. Schneider, Stephen H. (1989b), Global Warming: Are We Entering the Greenhouse Century?, Sierra Club Books, San Francisco.Google Scholar
  60. Schneider, Stephen H. and Norman J. Rosenberg (1990), ‘The Greenhouse Effect: Its Causes, Possible Impacts and Associated Uncertainties’, in Rosenberg (ed.), Greenhouse Warming: Abatement and Adaptation, 7–34, Resources for the Future, Washington DC.Google Scholar
  61. Sedjo, R. A. and Allen M. Solomon (1990), ‘Climate and Forests’, in Rosenberg (ed.), Greenhouse Warming: Abatement and Adaptation, 105–120, Resources for the Future, Washington DC.Google Scholar
  62. Socolow, R.H. (1975), ‘Efficient Use of Energy’, Physics Today, 23–33.Google Scholar
  63. Wicke, L. (1986), Die ökologischen Milliarden, Kösel-Verlag, Munich.Google Scholar
  64. Wigley, T. M. L., Climate Monitor 16, 14–28.Google Scholar
  65. Wilson, Edward O. (1989), ‘Threats to Bio-diversity’, Scientific American 261 (3), 66–66.Google Scholar
  66. Yohe, G., D. Howardh, and P. Nikiopoulus (1989), On the Ability of Carbon Taxes to Fend Off the Greenhouse Warming, Department of Economics, University of Connecticut, Middletown CT.Google Scholar
  67. Mathtech Inc. (1983), Benefits and Net Benefit Analysis of Alternative National Ambient Air Quality Standards for Particulate Matter, Mathtech Inc. (Prepared for the Economic Analysis Branch, Office of Air Quality Planning and Standards, U.S. Environmental Planning Agency (5 Vols)).Google Scholar
  68. National Acid Precipitation Assessment Program (1990), Integrated Assessment; Questions 1 and 2, draft final report (1), National Acid Precipitation Assessment Program, Washington DC.Google Scholar
  69. Organization for Economic Cooperation and Development (1984), Background Papers, International Conference on Environment and Economics, Organization for Economic Cooperation and Development, Paris.Google Scholar
  70. Organization for Economic Cooperation and Development (1989), Environmental Data Compendium 1989, Organization for Economic Cooperation and Development, Paris.Google Scholar
  71. Organization for Economic Cooperation and Development/International Energy Agency (1988), Energy Balances 1985–1986, Organization for Economic Cooperation and Development/International Energy Agency, Paris.Google Scholar
  72. United States Environmental Protection Agency (1988), The Potential Effects of Global Climate Change on the United States, Draft Report to Congress, United States Environmental Protection Agency, Washington DC.Google Scholar
  73. United States Environmental Protection Agency (1984), Policy Options for Stabilizing Global Climate, Draft Report to Congress, United States Environmental Protection Agency, Washington DC.Google Scholar
  74. World Resources Institute (1989), World Resources Yearbook 1988–89, World Resources Institute, Washington DC.Google Scholar

Copyright information

© Kluwer Academic Publishers 1991

Authors and Affiliations

  • Robert U. Ayres
    • 1
  • Jörg Walter
    • 2
  1. 1.Department of Engineering & Public PolicyPittsburghUSA
  2. 2.Department of Computer ScienceUniversity of IllinoisChampagne-UrbanaUSA

Personalised recommendations