Global warming presents unique policy issues, and even presents some challenges

Question

Global warming presents unique policy issues, and even presents some challenges for those that do cost-benefit analysis. Consider the following questions.

a. Studies have suggested that unchecked global warming may lower world GDP by 2 to 5 percent by 2100. Other studies have estimated that to reduce carbon dioxide emissions by half it will cost 1 to 3 percent of future world GDP every year. Since the costs are incurred immediately and the benefits occur much later in the future, current strategies to reduce global warming often do not pass a cost-benefit test. Given this, does it make sense to engage in an all-out war against global warming? Explain.

b. Another often-cited roadblock to combatting global warming is the free rider problem. Reducing global warming requires a coordinated effort among all countries. But countries generally have little leverage to convince other countries to behave in a manner consistent with their own goals. And a country that free-rides on other countries’ efforts to reduce global warming receives the benefits from those efforts, but incurs none of the costs. Describe strategies that you would use to create incentives to get all countries sign an agreement. Why would your plan be effective?

c. The table below represents a summary of regression models of the voting behavior of members of Congress on the American Clean Energy and Security Act (ACES) of 2009. The research was done by Matthew Kahn, an environmental economist. We discussed this briefly in class. Here are the actual results of the research. Each column represents the results of a regression equation. The dependent variable for all four regression equations was how each person voted (1=yes; 0=no). The number in each row next to the name of an independent variable is its estimated regression coefficient. For purposes of answering this question, you should be mainly concerned about the sign of each coefficient and its statistical significance. (The number in brackets below each coefficient is that coefficient’s standard error. If the coefficient was statistically significant, it is marked with an asterisk: * means significant at the 10 percent level, ** means significant at the 5 percent level, and *** means significant at the 1 percent level.) The names of the independent variables are, hopefully, self-explanatory. From the data in this table, what do you infer about the behavior of the typical member of congress voting yes or no on this bill? What factors in each person’s district/state seem to be most important? Which of the theories of government regulation (in this case, of global warming) does this evidence seem to support?

ACES Vote -0.105 -0.031 -0.144 log Per-Capita Carbon Emissions) -0.18 10.057 10.0761 10.062 [0.086] Log Average Household Income) 0.687 0.619 0.928 0.903 10.205]*** [0.215]*** 10.244]*** [0.259 -1.378 -1.414 -1.443 Conservative Ideology Score -1.375 0.109 10.113 10. 1131*** 10.1231*** -0.795 -1.048 Industrial Emissions Share 10.383]*** [0.350]** -0.195 Electric Utility Emissions Share -0.232 10.2281 10.242] Share over Age 65 2.549 2.183 1.8701 D1.933] Share Black 1.004 0.716 10.4021* 0.4461** 0.701 0.513 Share Hispanic 10.310 [0.324]**

Explanation / Answer

a) consider the two statements as suggested by the question: unchecked global warming may lower world GDP by 2 to 5 percent by 2100, to reduce carbon dioxide emissions by half it will cost 1 to 3 percent of future world GDP every year, on imposing uniform distribution to the estimates we can say that the expected loss in GDP due to unchecked globalwarming =3.5%,

while expected loss in GDP by reducing CO2 emmisions is = 2%, it is easy to see which is less than loss in GDP due to unchecked global warming, so we chould reduce the carbon emmisions.

b) well here the concept of non-cooperative games is pretty appropriate, if we can provide additional incentives that can make the fight against global more attractive than free ride to all countries then assuming rationality the global warming will reduce or atleast the efforts will increase.

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