Climate change is costly, but so is mitigation: What policies are most cost effective?

According to UN secretary general António Guterres, climate change is “the most systematic threat to humankind”. Since the beginning of the Industrial Revolution, rising greenhouse gas emissions have led to an increase in global mean temperatures, extreme weather events, and sea level.

Despite several UN conferences on climate change, governments have only tentatively tackled its causes and consequences. However, there is accumulating scientific evidence that rapid and decisive action is required to limit the consequences of climate change.

A call for action is famously put forward by the Fridays-for-Future movement. Triggered by this movement, the German government has recently agreed upon a new climate protection program that contains a multitude of measures to reduce greenhouse gas emissions.

Specifically, it avails pecuniary measures, such as a carbon tax and subsidies, but also non-pecuniary measures like energy audits and energy standards. The measures directly address the transportation, building, and agricultural sectors. They comprise a mix of penalties and compensations for citizens and companies to incentivize climate-friendly behavior.

There are at least three potential shortcomings of this program: First, it is debatable whether the measures it contains are sufficient to reduce Germany’s greenhouse gas emissions to accomplish the goals formulated in the Paris Agreement. Second, climate change can only be mitigated if it is tackled globally, which requires moving beyond unilateral action to multinational cooperation. Third, climate protection measures entail costs, which may unduly burden vulnerable segments of society via higher energy bills, requiring an adequate accompanying social policy to address distributional effects.

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Supporting researcher:

Stephan Sommer