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The economics of carbon pricing (A) 2008-78.1

30 June 2009



According to the Stern Review, “climate change is the greatest market failure ever seen”. Using the results from formal economic models, the Review estimates that if we don’t act, the overall costs and risks of climate change could be equivalent to losing at least 5 percent of global GDP each year, now and forever. If a wider range of risks and impacts is taken into account, the estimates of damage could rise to 20 percent of GDP or more. A number of issues in the economics of carbon abatement exist, but can be viewed through the same framework to understand what is arguably the major public policy issue facing the world. These tools may also be applied to other situations.

These conclusions are the starting point for this case study, which uses the diagrammatic tools of marginal cost and marginal benefit, and supply and demand, to address some of the contested issues in the debate about climate change mitigation. This is an updated and reworked version of the case study formerly titled The Economics of Climate Change.

Authors: Marinella Padula, Ross Guest
Published Date: 30 June 2009
Author Institution: Griffith University
Content Length: 11
Product Type: Case with teaching note, One-part case, Primary resources