Global Warming Policy: Some Economic Implications
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Various facts partially support global warming theory. More evidence is needed to determine whether rising atmospheric levels of CO2 resulting from the use of carbon-based fuels is causing global warming. Nevertheless, most scientists who study the issue think the use of fossil fuels contributes to the global warming that appears to be occurring. Still, considerable uncertainty remains about both the magnitude and the environmental consequences of global warming.
"Cost-benefit analysis suggests that the requirements of the treaty represent too much insurance against global warming."
Given the uncertainty, reducing CO2 emissions is like purchasing insurance against global warming and its possible environmental consequences. Under most current proposals, the industrialized nations would buy all or most of the insurance. Developing nations would possibly be asked to contribute only when their income levels rose.
Cost-benefit analysis suggests that reducing U.S. emissions of CO2 to comply with the Kyoto accord or to reach the more modest target proposed by President Clinton represents too much insurance. Analyses for the other industrialized countries yield similar results. It is not surprising, therefore, that the Kyoto accord remains unratified.
NOTE: The views expressed here are those of the author. Nothing written here should be construed as necessarily reflecting the views of the Federal Reserve Bank of Dallas, the Federal Reserve System or the National Center for Policy Analysis, or as an attempt to aid or hinder the passage of any bill before Congress.