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The Economics of the Climate Crisis

It is now clear that the world's current efforts to combat climate change are woefully inadequate. As the likelihood of catastrophic developments in the not-too-distant future increases, climate-change economists must adjust their models accordingly.

BOGOTÁ – Two major events last week bear directly on global debates about climate change and how to address it. The first was the release of a report from the United Nations Intergovernmental Panel on Climate Change (IPCC), which sets out precisely what must be done to achieve the objectives of the 2015 Paris climate agreement. The second was the announcement that Yale University economist William Nordhaus will share this year’s Nobel Prize in economics for his work “integrating climate change into long-run macroeconomic analysis.”

The first event should serve as a wake-up call for the international community. The IPCC report appeals to governments to take urgent action to reduce greenhouse-gas emissions significantly within the next decade. It warns that if average global temperatures are allowed to exceed 1.5°C – or, at worst, 2°C – above pre-industrial levels, the consequences could be catastrophic, and they will be felt as soon as 2040.

Worse, the report shows that the Nationally Determined Contributions set voluntarily by signatories to the Paris accord are vastly insufficient. Even if they are met, the increase in average global temperature will surpass 3°C by 2100, and will continue to rise still further after that. Clearly, when policymakers revise their countries’ NDCs, they must raise them significantly.

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