This seems a reasonable baseline view of climate change, one presented in the recent paper “Climate Change through the Lens of Macroeconomic Modeling” by economist and AEI Visiting Scholar Jesús Fernández-Villaverde (University of Pennsylvania), along with coauthors Kenneth Gillingham (Yale University) and Simon Scheidegger (University of Lausanne), from the paper:

• Earth has warmed by about 1.1°C since the Industrial Revolution.
• This warming is due to human-caused greenhouse gas emissions, mainly CO2 from burning fossil fuel.
• The impact so far: more frequent wildfires, droughts, floods, and hurricanes.
• Next impacts: “The abundance of cheap fossil fuels means that without policy action, continued emissions will likely harm the planet and reduce social welfare. Scientists predict that as temperatures rise, extreme events will become more frequent and intense.”

Let that info sink in for a moment, especially for any climate-change skeptics out there. 

One interesting fact in the paper concerns carbon pricing. When we burn gasoline, it causes environmental damage not reflected in its price. Scientists currently estimate this hidden cost at $61 per ton of CO2 emitted. Burning 113 gallons of gasoline produces about a ton of CO2. This means the true environmental cost of gasoline is about $0.53 per gallon or $0.14 per liter. A “carbon tax” would add this amount to gasoline prices, potentially encouraging less use and slowing climate change.

(A group of AEI scholars recently proposed a carbon tax of $25 per metric ton, rising annually by inflation plus two percent. This tax would replace current climate policies. Subsidies for ethanol and other alternative fuels would be eliminated, except for basic research on renewable energy. Energy tax credits and regulations aimed at reducing greenhouse gas emissions would also be scrapped. This approach aims to simplify climate policy by relying on a single, market-based mechanism to drive emissions reductions.)

Anyway, the thrust of the paper concerns how recent improvements in climate economics models mean we can now more accurately predict how climate policies like carbon taxes might affect jobs, the economy, and emissions. Artificial intelligence, in the form of machine learning, is making it possible to build and solve more sophisticated, realistic models of climate-economy interactions, which in turn provides better information for policy decisions. 

What’s more, researchers are working to make these models even better, especially for predicting rare but extreme climate events and local impacts. For example: They’re trying to better account for how new green technologies might develop and spread, and how people and businesses actually behave in response to climate change.

From the conclusion:

Substantial progress has been made over the past decade in understanding the economics of climate change. We now have computational tools and data that are vastly better than a decade ago and are continuing to improve, providing valuable new insights for policy discussions on the transition toward a green economy.

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