Institute for Research in Economic and Fiscal issues

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Climate change: what we know, what we don’t know. What to do and what not to do

IREF Working Paper No. 201702: Francesco Ramella

The prevailing opinion among national governments and supranational institutions is that climate change science is settled and drastic cuts in the emissions of CO2 and other greenhouse gases will be necessary in the next few decades to prevent dangerous climate changes caused by human activities. In the paper it is argued that:

a) science is not settled;

b) the negative impacts of climate change appear to be smaller than generally believed;

c) the ability to adapt to extreme events has increased considerably in recent decades. Most countries – possibly all countries – have witnessed a reduction of the number of victims to severe events. Moroever, most societies have made significant progress in economic and human terms (life expectancy, infant mortality, nutrition, child labour, etc.).

Past and current policies, including the so-called Kyoto Protocol, are based on a central planning approach that defines national and sectoral targets for the reduction of emissions. These policies have been both ineffective and inefficient. The reduction of emissions achieved will not have a significant effect on the climate, while the cost per ton of CO2 avoided has been much higher than necessary and often higher than the estimated benefits. A reduction of emissions may be considered desirable to protect property rights of people and to guarantee that a low-probability catastrophe will not occur.

Certainly, an approach based on the protection of such rights in court would be superior from a moral standpoint. By definition, no one would be worse off because of somebody else’s emissions. Yet, it could be very difficult to implement, given the peculiar nature of the problem characterized by a very high number of potential victims, and by the fact that the negative effects of the present emissions might persist for several decades. A modest, revenue-neutral tax (other taxes should be lowered to offset the impact) could avoid the worst of climate change without imposing much economic damage in the short run. To minimize costs, such tax should be uniform worldwide, and combined with the simultaneous suppression of any other form of regulation or subsidy. Moreover, and given the persistent uncertainty regarding the impact of anthropic emissions, the tax amount should be correlated to the actual evolution of temperature.

Regrettably, it is very unlikely that a global carbon tax will ever be implemented and if it was implemented it would most likely not eliminate previous forms of regulation: a growing number of bureaucrats have vested interests in a "complicated" climate policy, which also serves the interests of policy makers and private rent seekers.

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