Climate change and the economy: an introduction

This work presents in an accessible way the functioning of the natural climate system and the mechanisms through which global warming occurs. The warming of the Earth’s surface and the evolution of precipitation throughout the 20th century are documented, including for the Portuguese case. The channels of transmission of climate change to the economy are also analysed. The likely impact on the level of global GDP is negative, with a range of estimates very sensitive to the occurrence of phenomena that are difficult to predict. It also discusses economic policy proposals addressing the problem of fossil carbon emissions. Significant carbon taxation will likely have to coexist with the existing carbon emission permit system. The role of central banks in mitigating the effects of excessive CO2 emissions is analysed, highlighting regulatory reporting with a focus on environmental issues and the assumption of concerns related to sustainability and corporate responsibility. Finally, modelbased estimates of economic costs associated to climate change are presented. In this example, we conclude that the adoption of an optimal global policy would save Portugal about 0.5ºC of warming.