Climate Change, Climate Policy, and Economic Growth

The topics of climate change and climate change policy encompass a complex mixture of the natural sciences, economics, and a mass of institutional, legal, and technical details. This complexity and multidisciplinary nature make it difficult for thoughtful citizens to reach their own conclusions on the topic and for potentially interested economists to know where to start. This essay aims to provide a point of entry formacroeconomists interested in climate change and climate change policy but with no special knowledge of the field. I therefore start at the beginning, with some basic background on climate change, presented through the eyes of an econometrician. I then turn to climate policy in the United States. That discussion points to a large number of researchable open questions that macroeconomists are particularly well suited to tackle. Let me summarize my four main points. First, although a healthy dose of skepticism is always in order (as academics it is in our DNA), simple and transparent time series regression models familiar to macroeconomists provide independent verification of some key conclusions from climate science models and in particular confirm that essentially all the warming over the past 140 years is because of human activity, that is, is anthropogenic. Figure 1 shows time series data on annual global mean temperature since 1860, when reliable instrumental records start. As seen in the figure, the global mean temperature has increased by approximately 1 degree Celsius, compared with its 1870–90 average value. This increase in temperatures drives a wide range of changes in climate, including droughts, more hot days, and more intense rainfalls and storms, all of which vary regionally. Because climate science uses large, opaque calibrated models of the climate system, there is room for confusion among legitimately skeptical outsiders about just howmuch of the global warming observed since the industrial revolution results from human