In this month’s article at EconLib, I provide an introduction to the economics of climate change, and discuss some of its major controversies. Follow the above link for the full story, but in a nutshell here are the main issues:

(1) The Discount Rate. Economists give wildly different estimates of the “social cost of carbon” and hence the “optimal” tax on an additional unit of emissions.  These differences are not primarily due to the assumptions about climate systems or human vulnerabilities to warming. On the contrary, the main difference between, say, the policy recommendations of the Stern Review (very aggressive) and William Nordhaus’ DICE model (very moderate) is that Stern uses a very low discount rate, while Nordhaus plugs in an estimate of the market’s rate of return on capital.

Efforts to mitigate greenhouse gas emissions impose large, upfront costs on the economy (in terms of forfeited potential output of goods and services), while the benefits will not accrue until decades in the future (in the form of avoided climate change damage).…

[Editor note: This April 27th post is reprinted with slight modifications in light of the current newsworthiness of Alaska’s soon-to-be-ex-governor, Sarah Palin]

Last month, our friends over at the Heartland Institute published a front-page lead story in the April, 2009 edition of Environment & Climate News. Alyssia Carducci’s “Palin Energy Plan Receives High Praise” begins:

“Alaska Gov. Sarah Palin (R) has announced an ambitious plan to produce half of the state’s electricity from renewable sources by 2025. Palin’s plan, which empowers local municipalities to identify and develop the most cost-efficient renewable power sources available to them, won immediate praise from environmental groups, consumer groups, and industry.”

This article is yet more evidence that the inexplicable conservative love affair with Sarah Palin remains unrequited—at least, when it comes to economic policy in general and energy policy in particular.…

“A reliable and affordable supply of energy is absolutely critical to maintaining and expanding economic prosperity where such prosperity already exists and to creating it where it does not.”

– John Holdren, “Memorandum to the President: The Energy-Climate Challenge,” in Donald Kennedy and John Riggs, eds., U.S. Policy and the Global Environment: Memos to the President (Washington, D.C.: The Aspen Institute, 2000), p. 21.

Julian Simon (1932–98) is an inspiration to many of us here at MasterResource. Indeed, this blog is named for Simon’s characterization of energy as the master resource. In honor of Simon, I have reproduced some quotations from the vast literature on that theme.

The primal importance of energy is recognized across the political spectrum as the views of John Holdren, Paul Ehrlich, and Amory Lovins attest. Affordable, reliable energy is thus the starting point for public policy debate.…

The Houston Chronicle editorials have long been a bastion of climate alarmism and policy activism (see here and here), positions that must be so dear to the paper’s senior management (and owners?) that they have created badwill in the Houston community and no doubt a loss of readership.

One could call this courageous and a good thing if this position was well vetted and intellectually sound. A good paper should lead, not only follow, its audience.

But sadly, this is not the case. The case for regulating carbon dioxide (CO2) is quite questionable on purely physical scientific grounds (examine the empirical data; understand the debate over feedback effects regarding climate models). The balance of evidence is certainly not toward the high end of the Intergovernmental Panel on Climate Change (IPCC) temperature range, and it is, in fact, trending at the low end of this range with a decade of temperature quiet.…