ABSTRACT: The economic analysis of climate policy measures has evolved in response to the United Nations Framework Convention on Climate Change, and then the Kyoto Protocol. The original book by William Nordhaus led to a large and growing literature on the economics of climate change. Rather than attempt to describe all these papers in detail, I cover some of their principal findings through results reported by the Energy Modeling Forum. I also summarize portions of my own joint work with Richard Richels. Despite its simplicity, our model illustrates some of the most controversial issues in this debate. It provides a perspective on emissions and on taxes to restrain these emissions. It illustrates the implications of alternative discount rates. It also illustrates some conditions under which we can separate equity from efficiency issues.

INTRODUCTION

Global climate change is a multidisciplinary topic. The work was begun by physical scientists and then taken up by ecologists. Economists were latecomers, but they have been highly articulate. It was easy for everyone to agree on “win–win” strategies, for example, energy conservation measures that would reduce carbon emissions and also reduce costs. The economists made it clear, however, that it would be much more difficult to reach agreement on “cost–benefit” strategies – international protocols in which near-term costs are incurred by one group of nations so that future benefits can be obtained by others.