Term paper Assignment on Economics of global warming.

The Economies of Global Warming

Global warming: the Problem

Global warming is a major issue that has confronted many policy makers in the whole world. In terms of the economic analysis, the issue of greenhouse gas emissions that cause the planetary climate changes has represented both an environmental externality and the overuse of the common property use (Harris and Roach 4). Global warming is evident from the top of the atmosphere to the depth of the oceans. The evidence is collected by scientists and engineers’ using satellites and networks of weather balloons. This paper will analyze the aspect of the economy of global warming by evaluating its impacts and effective policies that can be used to combat global warming.

It is evident that the greenhouse gases, for example, carbon dioxide, methane and chlorofluorocarbons trap heat near the earth’s surface, this has significantly contributed to global warming in the surface. The greenhouse gases are long lived and they accumulate in the atmosphere over a long period of time. The carbon dioxide has increased by about twenty seven percent since the industrial revolution began, it is now increasing by about 0.5 percent every year. The concentration of  methane and  NO2  is increasing. The scientists have predicted that if the current trends in the increase of the greenhouse gases continue, the average temperatures in the world might rise to about two and six degrees (Nordhaus 34). The global warming probably involves a lag of a few years, therefore it is sometimes hard to predict the effects that are caused by the greenhouse gases, the gases are long lived and they accumulate in the atmospheres for a long period. Of all the greenhouse gases that accumulate in the atmosphere, about eight five percent results from the burning of the fossil fuels, twelve percent is caused by deforestation and other changes that take place in the land use. The United States is responsible for about twenty percent of all the CO2 emissions and about 10% of the emission of the other gases (Wheeler and Braun 12).

Global warming and economic theory

The phenomena of global warming can be described as having an anthropogenic origin. This is because of the massive consumption of the fossil fuel and the depletion of the tropical rain forests (Nordhaus 32). The predominant forces that cause this human activity are economists, therefore, any policy that or institutional measures to arrest the process of the atmospheric disequilibrium has to consider the economic, the social and the political implication of the whole process.

The phenomena of the global warming is characterized by two unique features, in one of the feature, it is argued  that, global warming is as a result of the concentration of the carbon dioxide and the other greenhouse gases that are in the atmosphere. In this case, the atmosphere plays the role of the overhead social capital, which is neither privately appropriated nor is it subject to the transactions of the market. The traditional economic theory is solely concerned with the scarce resources that are privately appropriated and whose ownership rights are transacted in the market (Smith 18).

The second feature explains about equity challenges that exist between different generations and different countries. The countries that emit most of the carbon dioxide are the countries that benefit most from the combustion of the fossil fuels; the countries that suffer most from the global warming are countries that benefit least from the combustion of the fossil fuels (Carayanis, Barth and Campbell 16).

By this same token, while the current generation enjoys higher living standards as a result of the combustion of the fossil fuels, many future generations will have to go through suffering as a result of the global warming and other challenges that are related to the atmospheric concentrations of the greenhouse gases (Harris and Roach 18). The traditional economic theory has stayed away from the challenges that involve the process of justice and equity, it has restricted its realms to the efficiency aspects.

Developing countries versus developed countries

Many developing countries will face a dilemma when it comes to the global warming debate. Understandably, many developing nations want to have a right to develop economically and expand in the fastest ways possible (Nordhaus 19). During the Kyoto conference, the developing nations were the most hesitant to agree to any sort of conventions that would limit their use of the greenhouse gases. The irony is that many developing countries have the most to lose when compared to the developed countries (Nordhaus 22). The developing nation do not have enough resources that can be utilized against the rising sea levels in their countries, the increased ferocity of the tropical storms and the great expansion of the tropical diseases.

As the developing countries work hard to boost their economies, they are largely dependent on the concepts of manufacturing and the energy industries, this increase the risk that the climate will be greatly affected by the global warming. The countries are now faced with a very difficult situation, should they sacrifice their economic development for the protection against the possible logical ecological problems in the near future? However, there is another alternative to the dilemma that is faced by these countries, this involves the development of alternative means for energy, and this can result to an even stronger economic progress than depending wholly on the utilization of the fossils.

Many developing countries, especially those that are found in Europe will face severely compromised food production and water shortages (Harris and Roach 27). Countries like those found in Asia will face great risk like flooding. Tropical Latin will experience damage to forests and agricultural areas due to dry the climate. In Sothern America, the changes that will take place in precipitation patterns and the disappearance of the glaciers will affect the availability of water in the continent. Compared to the developing nations, the developed countries will have the necessary resources that will be needed for adapting, the developing countries will not have the power to implement the necessary preventive measures, especially those that require the use of the latest technologies

Economic analysis of global warming

Scientists around the world have modeled the effects of the projected doubling of the accumulated gases in the atmosphere. Some of the predicted effects of the gases include the loss of the land areas; this includes the beach and the wetlands, the loss of the species and the forest areas, the loss of agricultural outputs as a result of drought and the increased cost of the air conditioning, the loss of agricultural output as a result of the drought. Global warming may have some beneficial outcomes as well; this includes the increased agriculture production in colder climates, lower heating costs and fewer deaths from the exposure to the cold (Harris and Roach 54).

The economic studies that deal with the cost benefit analysis of the climate change have come to different conclusions on matters regarding policy (Harris and Roach 45). According to the studies that were done by William Nordhaus and colleagues, the optimal economic policies that can be utilized in slowing the climate change involve the modest rates of emissions reductions in the near term; this will be followed by an increase in the reduction in the medium and the long term.

Positive economic impacts of global warming

The aspect of global warming will affect every aspect of the economy, especially in agriculture, energy and transportation. When the question of how the global warming is asked, there are two different ways to look at this concept. Many economists who have the knowledge of the concept of global warming have a bias to know how the global warming affects the economy in a negative way and not in a positive way. Very few people have insights that the concept of global warming can result to many advantages. Many researchers have documented the optimistic side of the concept of global warming (Wheeler and Braun 65). Researchers have analyzed some benefits of human societies in warm weather. The warm world should affect the agricultural productivity, according to Moore; warmer weather means that there will be a long growing season and therefore a great output, warm weather results in great rainfall providing the much needed water for the plants. Due to the warm weather, the risk of the crop failure is decreased with short, mild winters, for example, the countries that are found in the mid Atlantic states are likely to benefit from the high temperatures (Nordhaus 76).

Warmer climates, as a result of global warming benefit other forms of life. By having warmer arctic’s, more available resources that were trapped by ice to the human exploration and the transportation industry will benefit because of the warm climate. The heavy rains and the snow that occurs during the winter, interrupt the ground and the air transportation, this results in costly delay and severe conditions that result to waste of resources (Nordhaus 89). Currently, many freighters are forced to use the Panama Canal in order to reach the other side of the world; those that cannot fit in the canal are forced to go around South America. Short routes through the arctic would result in lower shipping costs. The concept of global warming can result to many  benefits in the economic activity, this is because so many people around the world depend on oil, fish transportation, and shipping. The increase in supply of goods due to the high climate will result in low prices for these goods (Wheeler and Braun 78).

In cold countries, the amount of energy that would be used for heating would be low, countries that are far away from the equator will benefit immensely. Few weeks of warm weather have potential of saving a country’s millions of dollars. Many companies around the world are now presenting the issue of going green as one of their major focal points. Despite the fact that the expenses, generates by this companies in their initiatives may be immense, the result of this activity is highly beneficial to the companies because the mass public is shifting towards a green market. By conducting business through a more energy efficient manner and watching the emissions of the carbon dioxide, many organizations and the consumers will be able to save large amounts of money and this will boost the economy (Smith 56).

Negative effects of global warming

Many people have the belief that the evidence of global warming is conclusive and that doing nothing about global warming will create a much greater cost that exceed addressing it. The most comprehensive review carried out regarding the economics of climate change contends that the concept of global warming could impact the worldwide disruptions. The concept of climate change will have a great impact on the basic elements of life for the people who live around the world; this will be in terms of access to clean water, food resources and the environment. The dangers of the climate change would be equivalent to five percent of the gross domestic product (Wheeler and Braun 45). The effects this will have on economy will not be immense. The elements that are important for the purpose of sustaining human life will be in very high demand as the population grows and the sea levels rise; there could be loss of land.

Many environmental factors will be apparent and they will have the potential of affecting the economy heavily, the most recent evidence of the impacts of global warming is the severe weather storms. Many researchers have come together to study the effects of global warming on the number of severe storms, it is now evident that the number of stormy days could double in the future. The effects that the storm has on the economy are widely evident; hurricanes Katrina and Rita brought massive physical damage and took a huge toll on the economy of the country. In the year 2007, flooding in the UK resulted in financial tensions, this was all blamed on global warming, in a case like this, it may happen that some areas may not be under insurance coverage and the ones that are insured may pay extensive premiums (Harris and Roach 56).

Despite the fact that global warming boosts food production in some of the cases it can result to desertification. This fact is usually compounded by the lack of water in those areas, these results in a decline in food supply as a result of increases in the food prices. The countries that are considered to be the net importers of food will be greatly impacted by this situation as a result of the temperature rise. The rising temperature will result to crops growing more quickly and at the same time reduce their yield; the extreme temperatures will also significantly reduce the yields (Harris and Roach 78).

The fact that global warming causes rising sea levels that are detrimental to economy. The process of fighting against the rising sea levels is not trouble free and it is a very expensive process in terms of the flood defenses (Smith 89). Many countries lack the facilities to counter the adverse effects of global warming. Variations in temperature may cause increased infrastructural cost.

The carbon tax policy

The actual climate change policies have not taken the concept of the uniform taxes, everywhere, the measure that are in force today or in prospect are largely made of a long list of growing regulatory initiatives that have been termed as immensely costly. In all such cases around the world the adoption of the carbon tax that eradicated the costly taxes has constituted a major improvement in combating the phenomena of global warming (Nordhaus 56).

The concept of the carbon tax has been around for very many years now, however, the numerous questions and misconceptions regarding this method have remained. Before going into detain on the carbon tax, it is important to come up with the economic fundamentals of the carbon taxes. It is important to note that basic mechanism of carbon tax involves creation of tax for every ton of carbon dioxide that is emitted (Wheeler and Braun 75).

CO2 is unique to be taxed by using this was because in many situations, there are no abatement options, once the carbon is burned, the whole content of the carbon ends up in the air, therefore, if we have knowledge of the amount of carbon that is burned, then we will have the knowledge of the amount of tax that should be taxed. The people who use the fuel will economize through the reduction of the most carbon intensive forms. Since the purchase made in the market are more motivated to save their money, all the emissions reduction options that cost less than the given tax will be adopted (Harris and Roach 70). The result of this is that the market will have the knowledge of all methods that can reduce the emissions of the CO2,  in the process utilizing far more information than would have been available to the government planners and the rule makers.

Because of this economic mechanism, the carbon tax is one of the most efficient methods of reducing the CO2 emissions, however, this comes with three caveats, these include, instead of, not in addition to, this means that the carbon taxes must be utilized instead of, and not on top of. People who argue for the adoption of the carbon tax without the support of the removing of the other policies may not be able to fully understand what all this implies (Harris and Roach 56).

The second caveat involves the revenue neutrality via the tax reduction; the case of the efficiency of the carbon tax presupposes that revenues are not utilized for anything else apart from the reduction of the carbon (Harris and Roach 45). The absence of this condition can make the carbon tax not only to become a macro economic burden, but a foundation for new regulatory inefficiencies. The third caveat proposes that the carbon tax should be a price instrument and not a quantity instrument. The policy works efficiently through the stipulation of the price that a person pays for the emissions.


Global warming involves accumulation of greenhouse gases that traps heat in atmosphere. Significant economic effects are felt due to global warming. It is important to know that global warming can have some positive and negative effects on the economy, many scientists have been biased to only look at the negative impacts that global warming has on the economy; however, it is now clear evidence that global warming has significant positive effects on the economy. Carbon taxes are the most efficient ways of combating severe effects of global warming.

Works cited

Carayanis, Elias G, Elias Barth and David Campbell. “The Quintuple Helix innovation model: global warming as a challenge and driver for innovation.” Journal of Innovation and Entrepreneurship (2012): 1-12.

Harris, Jonathan M and Brian Roach. Environmental and Natural Resources: A contemporary Approach. New York: Routledge, 2014.

Nordhaus, William D. “Economic aspects of global warming in a post Copenhagen environment.” Proceedings of the National Academy of Sciences. Copenhagen, 2010. 11721-11726.

Smith, Alison. The Climate Bonus: Co-Benefits of Climate Policy. New York: Routledge, 2013.

Wheeler, Tim and Joachim Von Braun. “Climate Change Impacts on Global Food Security.” Science (2013): 508-513.