Environmental Economics

From the WSJ's Micro Weekly Review:

Greenhouse-Gas Fight Escalates
by: Keith Johnson
Sep 03, 2013

TOPICS: Environmental Regulation

SUMMARY: A
quiet move by the Obama administration to put a higher price tag on
greenhouse-gas emissions has sparked a big fight, prompting new
legislation in Congress and sniping in academic circles. "Buried in new
energy-efficiency standards the Department of Energy released in May
for microwave ovens was an administration estimate that the cost to the
country for each ton of carbon dioxide emitted was $36 in 2007
dollars-up from its 2010 estimate of $21 a ton. The number is important
because the more costly carbon pollution is deemed to be, the greater
the apparent economic benefits of new environmental regulations. The
climate plan hinges on such regulations, including restrictions on new
power plants that the Environmental Protection Agency is set to release
in late September." The article includes comments by economists Robert
Pindyck and William Nordhaus about the estimates of the economic cost
of carbon emissions.

CLASSROOM APPLICATION: The
article could prompt a classroom discussion and investigations into the
issue of the economic methodology of estimating the economic effects of
climate change.

QUESTIONS: 
1. (Advanced)
Why the estimate of the cost of carbon emissions important to the
economic analysis of setting prices or limits on these emissions?

2. (Introductory) How does the size estimate affect the magnitude of carbon emission policies?

3. (Advanced)
The column states, "Robert Pindyck, an economics professor at the
Massachusetts Institute of Technology, slams the models in a coming
paper to be published by the National Bureau of Economic Research,
saying they use essentially arbitrary inputs and give a misplaced
illusion of scientific certainty." What is the misplaced illusion of
scientific certainty? How does uncertainty about the effect of carbon
emissions on economic welfare affect carbon policy?

Reviewed By: James Dearden, Lehigh University

Here is an important excerpt from the WSJ article given the discussion about Pindyck's paper: 

Though his work has given ammunition to skeptics of global-warming science, Mr. Pindyck said his point is really about the difficulty of modeling possible catastrophic impacts of climate change. "We know there's a social cost of carbon, and we know it's above $0," he said. "If anything, the cost of carbon could be higher" than the administration's models suggest.