EBF 200
Introduction to Energy and Earth Sciences Economics


Climate Change Controversies


Many aspects of the global warming debate are controversial, meaning that there is an amount of disagreement that is sufficient to make reaching consensus or compromise difficult. That the planet is warming is now widely accepted, but the causes, risks, and mechanisms are hotly debated. At the end of the day, devising and implementing economic instruments to address climate change is a political decision, which means it is largely beyond the scope of discussion in this forum – economists seem to have a habit of getting themselves in hot water when they venture into the field of politics. All I can do here is spell out the framework of some of the current disagreements and controversies.

What is notable is the change that has occurred in the United States over the last ten years. The Kyoto Protocol was the first attempt to reach a global agreement on carbon reduction.

Recommended Reading

For more background on the Kyoto Protocol see United Nations Framework Convention on Climate Change's page on Kyoto Protocol or the Wikipedia page on Kyoto Protocol.

Any action concerning ratification of the Kyoto treaty was voted down 95-0 in the US Senate in 1997. However, 12 years later, in 2009, a bill was passed through the House of Representatives, containing greenhouse gas (GHG) standards on vehicles and implementing a carbon cap and trade policy for large stationary emitters. This was called the Waxman-Markey bill (officially titled the American Clean Energy and Security Act). This bill proved to be very unpopular with some parts of the American populace, and, as such, an accompanying bill was never introduced in the Senate. With a number of representatives being newly elected in 2010 having campaigned against any bill containing a cap-and-trade provision, it is unlikely we will see another bill on this introduced in the foreseeable future. However, as I mentioned above, there has been a large change since 1997. Furthermore, the Environmental Protection Agency has been granted, by the Supreme Court, the responsibility of reducing carbon emissions using provisions contained in the Clean Air Act, and the EPA is currently developing policy and guidelines for the control of carbon from emitters.

Additionally in the United States, a number of state and regional cap and trade programs have been, or are being, implemented. In the northeast, up to 10 states (although this fell to 9 in 2012 when New Jersey's Governor announced that state's withdrawal from the program) have been participating in the Regional Greenhouse Gas Initiative (RGGI) since the program's beginning in 2009. The program provides for a cap on carbon emissions from electrical generation facilities in the 10 states which decreases over time. In California, a cap and trade program began trading allowances in 2012, with an emissions cap on electrical generation facilities beginning January 1, 2013. Other states and some Canadian provinces are considering joining California to form a regional program called the Western Climate Initiative (WCI).

Therefore, it is unlikely that this issue is going to go away. Regardless of where you stand on the political spectrum, this is an issue that you will have to address over the next 30 or 40 years. It is not going to go away because of one election.

I will now attempt to list and briefly describe some of the major points of controversy in the climate change discussion.


Some people, some of them credible and sensible, believe that the anthropogenic nature of global warming may be overstated. That is, it could be that the planet is warming for reasons other than human activity, or that the degree of warming may be misunderstood. Measuring global temperature is complicated, and the data can be difficult to interpret. Also unknown are the scales and contents of certain feedback mechanisms. How will clouds affect climate change? Will we reach a steady state above which we will never see any more warming? Is sunspot activity a factor in climate change (other planets have shown recent temperature changes.) What if we drastically reduced carbon emissions, with a detrimental effect on human economic development and human welfare, but climate change continued unabated? All of these issues are difficult to assess.

Benefits versus Costs

Defining the sizes of the costs and benefits from emitting carbon is extremely difficult. This is complicated by the fact that the beneficiaries and the victims often live in different places, and perhaps exist at different places in time. Thus, calculating the socially optimal amount of carbon emissions for each different country is very difficult. Thus, policy design is complicated, and we have the ever-present free-rider problem, whereby some countries, especially small ones, may feel that they can cheat on carbon with impunity to benefit their domestic industries and people at the expense of others.

Uncertainty of Effects

This is basically a reiteration of the above point: we are unsure of the future scale of effects from an increase in anthropogenic carbon dioxide. How much will temperature rise? What kind of feedback loops exist? There are a number of feedback mechanisms that have been talked about. For example, the Gulf Stream is an ocean current that carries warm water from the Caribbean to the North Atlantic. The result of this is that western Europe is quite a bit warmer than most other parts of the planet that are at similar latitudes (for example, London is about 750 miles further north than New York, but both have similar climates, especially in the winter.) The Gulf Stream is driven by salinity gradients in the North Atlantic, but if a lot of fresh icecap water melts, the salinity gradient will be weakened, and this may cause the Gulf Stream to stop flowing, making northern Europe much colder. Another possible mechanism is that there is a lot of methane trapped in the permafrost of the frozen tundra of northern Canada and Siberia. If the permafrost melts, this methane will go into the environment, and methane is about 20 times more effective than CO2 at trapping heat in the troposphere. Thus, if the tundra melts, it will cause the greenhouse gas to accelerate, raising temperatures even more, and so on. These feedback loops are poorly understood. There are other ones that could work in the opposite direction. For example. warmer air means more moisture suspended in the atmosphere. Water vapor is a powerful greenhouse gas, but in the form of clouds, it is effective at blocking radiation and reflecting it back out into space before it reaches the ground. Which effect would dominate? That is a question that is currently under investigation. Our knowledge of the potential effects of higher concentrations of greenhouse gases is unknown. Some people will say that in the face of uncertainty, we should adopt the "precautionary principle".

Recommended Reading

This notion is explained in a bit more depth on The Science and Environmental Health Network website.

The basic idea is that if we don't know how much harm some practice will do, maybe we should hold off on that practice until we have more information. There has been a lot of vigorous debate about this topic, with many arguing that if it had been applied in the past, much of the technological progress that has led to drastic improvements in quality of life over the past 200 years would have not occurred. The precautionary principle essentially puts the burden of proof on somebody who wishes to implement a new technology - they have to show reasonable proof that this technology will not cause excessive harm. In a scientific context, it is difficult to prove a negative.

Tax versus Cap-and-Trade

There is a current mood against cap-and-trade, despite its success in combating acid rain in the US and the operating of a European GHG cap-and-trade market. Some people believe that such a market is overly complicated, will be easily gamed, and will result in windfall profits accruing to certain firms and industries. Tax opponents claim that using a tax is an indirect approach that is fraught with potential error, as it requires knowledge of the shape and form of the demand curve, something that is almost impossible to know. Tax supporters say that at least a tax will give price stability, and that a cap-and-trade market can lead to great price volatility, making business and tax planning very difficult.

Allocation of Permits – Domestically and Internationally

At the current point in time, it appears unlikely that we will any sort of binding global agreement on carbon abatement, or an international permit trading system. However, if we do embark upon some sort of global cap-and-trade policy, how will the permits be allocated? How many will each country be able to issue, and how much will each country charge? Will they give them out for free, or will they sell them all, or some combination? Europe has had a carbon trading regime in place for several years, and in its early phases, it was largely ineffective. One of the reasons for this is that each country in Europe got to decide how many permits will be issued to firms within that country. Thus, every country has an incentive to issue more permits to firms within its borders, while arguing that "somebody else" should be issued less. In the absence of any sort of superior governmental authority, this problem is difficult to overcome. When nations disagree, and one nation attempts to force another nation to change policies, compliance mechanisms typically involve trade sanctions, followed by military action. I do not believe that carbon permit allocations are anything that anybody wants to start a trade war (let alone an actual war) over. I should note that this permit allocation problem in the European Union has been largely overcome in recent years by fine-tuning the allocation process.

Abatement versus Adaptation

In some respects, it may make economic sense to simply let global warming happen and deal with the consequences. That is, adapting to the consequences of climate change may be a cheaper option than trying to prevent climate change. In reality, we will likely see some combination of abatement and adaptation, but adaptation is difficult to apply in an equal fashion across the globe.

International Implementation

How can all countries be forced to implement policies addressing climate change? How do we punish free-riders? How do we tell developing countries that they are not free to use fossil fuels to build industrial economies in the way that we in the west have done over the past 200 years.

Revenue Recycling

If we auction off permits, where does the revenue from these permits go? Towards clean technology development? To the reduction of income and capital investment taxes? To compensate the victims of climate change? To State governments, to dole out as political pork?

Intergenerational Equity and Discounting

Why should we make ourselves poorer today to benefit people who will be born 100 years from now, when they are likely to have better technology to deal with a warmer world? Conversely, how can we perform “bad behavior” that will inevitably make the world a worse place for future generations to live in? How can we perform cost-benefit calculations that have time-dependence built in (that is, near-term effects are valued higher than far-term effects?) For me, a dollar twenty years from now has less value than a dollar today, and a dollar earned 100 years from now has zero value to me. However, to somebody who is 25 years old in 100 years, the relative utilities of those dollars would be very different.


It is likely that we will see some global-scale technology efforts aimed at attacking climate change. One example involves putting large mirrors in space to reduce the amount of solar radiation reaching the earth. Another is seeding the oceans with iron oxides in order to increase their capacity to store carbon. Yet another is carbon capture and sequestration, which involves storing carbon deep in the earth. All of these things are expensive, and all of them have potential adverse, unintended consequences that may cause more damage than good. How do we address these things on a global scale? Indeed, climate change is intrinsically a global issue, and we do not have a single global human institution with the power, money and authority to act upon climate change.

Many of the controversies mentioned above have a common theme: uncertainty. As of right now, we have great difficulty quantifying the effects and timing and location and costs of climate change, and, as such, it is difficult to reach any sort of meaningful consensus that we should do something, or anything. Thus, it is no longer an economic problem, but a political problem.