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The Greenhouse Debate: Econonmic Efficiency, Burden Sharing and Hedging Strategies

We address the issue of economic efficiency as it relates to climate change. We begin with a classical cost-benefit perspective. Mat is, we focus on emission trajectories which maximize net benefits. We then examine the consequences of adopting alternative decision making paradigms-for example, those based on limiting atmospheric concentrations so as to achieve an "ample margin of safety." We also consider the regional distribution of costs and benefits under alternative burden sharing schemes. Although the climate issue is often viewed from a global perspective, international negotiators will be acutely interested in how damages and mitigation costs might be distributed among individual regions. Finally, we address the issue of decision making under uncertainty. The challenge confronting today's policy makers is to identify it sensible hedging strategy-one that balances the risks of waiting against those of premature action.

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Energy Specializations: Energy Modeling – Energy Data, Modeling, and Policy Analysis; Energy and the Environment – Climate Change and Greenhouse Gases; Energy and the Environment – Policy and Regulation

JEL Codes:
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
Q54 - Climate; Natural Disasters and Their Management; Global Warming
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General

Keywords: Greenhouse gases, climate change, burden sharing, MERGE model, economic efficiency

DOI: 10.5547/ISSN0195-6574-EJ-Vol16-No4-1

Published in Volume16, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.