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The Role of Economics in Climate Change Policy

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  • Warwick J. McKibbin
  • Peter J. Wilcoxen

Abstract

The most important characteristic of climate change as a policy problem is uncertainty. From climatology to economics, uncertainties are pervasive, large and difficult to resolve. However, the economic theory of environmental policy under uncertainty provides a clear guide to the design of an appropriate policy. An efficient and practical approach would be a hybrid that incorporates the best features of tradable permits and emissions taxes. Unfortunately, international negotiations have taken a different approach, focusing on rigid targets and timetables for emissions reductions. The result has been the Kyoto Protocol, an agreement with no real chance of reducing greenhouse gas emissions.

Suggested Citation

  • Warwick J. McKibbin & Peter J. Wilcoxen, 2002. "The Role of Economics in Climate Change Policy," Journal of Economic Perspectives, American Economic Association, vol. 16(2), pages 107-129, Spring.
    • Handle: RePEc:aea:jecper:v:16:y:2002:i:2:p:107-129
    Note: DOI: 10.1257/0895330027283
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/0895330027283
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    References listed on IDEAS

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    1. Richard S.J. Tol, 1999. "Kyoto, Efficiency, and Cost-Effectiveness: Applications of FUND," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 131-156.
    2. Warwick J. McKibbin & Peter J. Wilcoxen, 1997. "A Better Way to Slow Global Climate Change," Economics and Environment Network Working Papers 9702, Australian National University, Economics and Environment Network.
    3. Peter A. Diamond & Jerry A. Hausman, 1994. "Contingent Valuation: Is Some Number Better than No Number?," Journal of Economic Perspectives, American Economic Association, vol. 8(4), pages 45-64, Fall.
    4. William D. Nordhaus, 1991. "The Cost of Slowing Climate Change: a Survey," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 37-66.
    5. Newell, Richard G. & Pizer, William A., 2003. "Regulating stock externalities under uncertainty," Journal of Environmental Economics and Management, Elsevier, vol. 45(2, Supple), pages 416-432, March.
    6. William D. Nordhaus, 1993. "Reflections on the Economics of Climate Change," Journal of Economic Perspectives, American Economic Association, vol. 7(4), pages 11-25, Fall.
    7. Warwick J. McKibbin & Peter J. Wilcoxen, 1997. "Salvaging the Kyoto Climate Change Negotiations," Economics and Environment Network Working Papers 9704, Australian National University, Economics and Environment Network.
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