by the Congressional Budget Office

“ Balancing Competing Uses The atmosphere and climate are part of the stock of natural resources available to people to satisfy their needs and wants over time. From an economic point of view, climate policy involves measuring and comparing the values that people place on resources, across alternative uses and at different points in time, and applying the results to choose a course of action. An effective policy would balance the benefits and costs of using the atmosphere and distribute those benefits and costs among people in an acceptable way. ”

“ Uncertainty about the scientific aspects of climate change and about its potential effects complicates the challenge of developing policy by making it difficult to estimate or balance the costs of restricting greenhouse gas emissions and the benefits of averting climate change. ”

“ Restraints on emissions would impose costs on nearly everyone in the global economy, but they would affect energy-producing and energy-intensive industries, regions, and countries much more than they would others. However, many studies of the costs and benefits of climate change fail to highlight the extent to which differences in geographic and economic circumstances complicate the balancing of interests. ”

“ A variety of technological options are available to restrain the growth of emissions, including improvements in the efficiency of people’s use of fossil energy, alternative energy technologies such as nuclear or renewable power, methods for removing greenhouse gases from smokestacks, and approaches to sequestering gases in forests, soils, and oceans. But those alternatives are likely to be costly, and they are unlikely to be widely implemented unless measures are taken to lower their price or to raise the price of greenhouse gas emissions. ”

“ Uncertainty about the costs and benefits of regulation affects the relative advantages of different incentive-based approaches. Some research indicates that such uncertainty gives a system of emissions pricing economic advantages over a quota system that fixes the quantity of emissions. Those advantages stem from two facts: both the costs and benefits of reducing greenhouse gas emissions are uncertain; and the incremental costs—the additional costs of reducing an additional ton of emissions—can be expected to rise much faster than the incremental benefits fall. ”

“ Government policies that deal with use of the atmosphere inevitably affect the distribution of resources. Inaction benefits people who are alive today while potentially harming future generations. Reducing emissions now may benefit future generations while imposing costs on the current population and may benefit countries at relatively higher risk of adverse effects from warming while hurting those that stand to gain from it. ”

“ Policy Options Governments may respond to climate change by adopting a "wait-and-see" approach, by pursuing research programs to improve scientific knowledge and develop technological options, by regulating greenhouse gas emissions, or by engaging in a combination of research and regulation. The United States has invested in research and subsidized the development of carbon-removal and alternative energy technologies. ”

“ The accumulation of those gases is changing the composition of the atmosphere and is probably contributing to a gradual warming of the Earth’s climate—the characteristic weather conditions that prevail in various regions of the world. Scientists generally agree that continued population growth and economic development over the next century will result in substantially more greenhouse gas emissions and further warming unless measures are taken to constrain those emissions. ”

“ At the same time, such studies typically find relatively small net benefits from acting to reduce greenhouse gas emissions in the near term. In balancing alternative investments, they conclude that if modest restrictions on emissions were implemented today, they would yield net benefits in the future; however, more-extensive restrictions would crowd out other types of investment, reducing the rate of economic growth and affecting current and future generations’ material prosperity even more than the averted change would. ”

“ As income and wealth grow and technology improves, the studies say, future generations are likely to find it easier to adapt to the effects of a changing climate and to gradually impose increasingly strict restraints on emissions to avoid further alteration. ”

“ International Coordination Because the causes and consequences of climate change are global in nature, effective policies to deal with it will probably require extensive international coordination among countries with very different circumstances and interests. Coordination may involve formal treaties or nonbinding agreements and could range from modest commitments to engage in research to more-extensive programs to restrict emissions, monitor compliance, and enforce penalties. ”

“ One option is direct controls, which set emissions standards for equipment and processes, require households and businesses to use specific types of equipment, or prohibit them from using others. A government could also adopt more indirect, incentive-based approaches, either singly or in combination—for example, by restricting overall quantities of emissions through a system of permits or by raising the price of emissions through fees or taxes. Incentive based approaches are generally more cost-effective than direct controls as a means of regulating greenhouse gas emissions. ”

“ Some could be relatively minor and some severe in their impact: warming could raise sea levels; expand the potential range of tropical diseases; disrupt agriculture, forestry, and natural ecosystems; and increase the variability and extremes of regional weather. There is also some possibility of unexpected, abrupt shifts in climate. Actual outcomes will probably be somewhere in the middle of the range of possibilities, but the longer that emissions grow unchecked, the larger the effects are likely to be. ”

“ However, governments may also fail to allocate resources effectively, and international cooperation will be extremely hard to achieve as well. Developed countries, which are responsible for the overwhelming bulk of emissions, will be reluctant to take on increasingly expensive unilateral commitments while there are inexpensive opportunities to constrain emissions in developing countries. ”

“ With rights and responsibilities difficult to delineate and agreements a challenge to reach, markets may not develop to allocate atmospheric resources effectively. It may therefore fall to governments to develop alternative policies for addressing the risks from climate change. ”

“ A system of emissions pricing has several other advantages over one of emissions quotas. Pricing could raise significant revenues that could be used to finance cuts in distortionary taxes—such as those on income—that discourage work and investment. ”

“ The distributional effects of emissions regulations would depend on the type and stringency of the regulations and could be very large relative to how much the policy improved people’s well-being. Those potential effects might spur the affected parties to engage in rent-seeking—vying for regulatory provisions that would provide them with tax exemptions, access to permits, and so on. ”

“ Those conclusions greatly depend, among other things, on how one balances the welfare of current generations against that of future generations. In assessments of costs and benefits occurring at different points in time, that process of weighting is typically achieved by using an interest, or discount, rate to convert future values to present ones. ”

“ Despite the general consensus that some amount of warming is highly likely, extensive scientific and economic uncertainty makes predicting and evaluating its effects extremely difficult. Because climate is generally a regional phenomenon, the effects of warming would vary by region. ”

“ Each alternative simultaneously addresses the problems of limiting emissions and distributing the burden of regulation, which remain the crucial sources of disagreement. Each option reflects a distinct interpretation of the available evidence about the net benefits of averting climate change in different regions and for different generations, as well as practical concerns about how climate policy would affect the global economy. ”

“ Some analysts argue for a laissez-faire approach because they believe that the amount of warming is likely to be small and its effects largely benign, or that near-term action is unwarranted in the light of scientific uncertainty. Other researchers have proposed systems of emissions taxes or tradable emissions permits that would be auctioned at fixed prices. ”

“ Furthermore, some programs that were in tended to achieve other goals, such as pollution reduction, energy independence, and the limitation of soil erosion, also discourage emissions or encourage the removal of greenhouse gases from the atmosphere. ”

“ In general, the permits would apply to developed countries and exempt developing nations on the grounds of equity. Still other analysts have proposed complex systems that are intended to impose roughly uniform emissions prices throughout the world yet ensure that developed countries bear most of the cost. ”