How can you use environmental economics for climate change policy?

1 The social cost of carbon

One of the main challenges of climate change policy is to measure the economic impact of greenhouse gas emissions, and to assign a price to them that reflects their social cost. The social cost of carbon (SCC) is an estimate of the monetary value of the damages caused by an additional ton of carbon dioxide (CO2) emitted into the atmosphere, over its lifetime. It includes the effects on health, agriculture, biodiversity, infrastructure, and more. By using the SCC, you can compare the benefits and costs of different emission reduction strategies, and set a carbon tax or a cap-and-trade system that incentivizes lower emissions.

2 The tragedy of the commons

Another challenge of climate change policy is to overcome the collective action problem that arises when multiple actors share a common resource, such as the atmosphere, and have an incentive to overuse it or degrade it. This is known as the tragedy of the commons, and it can lead to inefficient and unsustainable outcomes. To avoid this, you can use environmental economics to design mechanisms that align individual and social interests, such as property rights, contracts, subsidies, penalties, or public goods provision. For example, you can create a global fund that rewards countries that reduce their emissions or preserve their forests.

4 The co-benefits and trade-offs

A fourth challenge of climate change policy is to consider the co-benefits and trade-offs that may arise from different interventions. Co-benefits are the positive side effects that may enhance the overall effectiveness and efficiency of a policy, such as improved air quality, health, or innovation. Trade-offs are the negative side effects that may reduce the overall effectiveness and efficiency of a policy, such as higher costs, lower growth, or social inequality. By using environmental economics, you can identify and quantify the co-benefits and trade-offs of different options, and balance them in a holistic and transparent way.

5 The behavioral insights

A fifth challenge of climate change policy is to understand and influence the human behavior that drives the emission and consumption patterns. How do people perceive and respond to environmental problems and policies? How can we motivate and nudge them to adopt more sustainable practices and lifestyles? To address these questions, you can use environmental economics to incorporate the behavioral insights from psychology, sociology, and neuroscience, and to design policies that account for the cognitive biases, social norms, and emotional factors that affect human decision-making. For example, you can use framing, feedback, or social comparisons to encourage energy conservation or recycling.

6 The policy evaluation

A sixth challenge of climate change policy is to monitor and evaluate the outcomes and impacts of the policies implemented, and to learn from the successes and failures. How can we measure and attribute the effects of a policy on emissions, welfare, and sustainability? How can we improve and adapt the policies over time, based on the evidence and feedback? To answer these questions, you can use environmental economics to apply the rigorous methods and tools of policy evaluation, such as experiments, surveys, models, or indicators. By doing so, you can assess the effectiveness, efficiency, and equity of different policies, and generate valuable knowledge and lessons for future policy-making.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?