Buying Greenhouse Insurance: The Economic Costs of Carbon Dioxide Emission Limits

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MIT Press, 1992 - Business & Economics - 182 pages
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In recent years a growing concern that the increasing accumulation of greenhousegases will lead to undesirable changes in global climate has resulted in a number of proposals, bothin the United States and internationally, to set physical targets for reducing greenhouse gasemissions. But what will these proposals cost? Based on the authors' earlier ground-breaking work,Buying Greenhouse Insurance outlines a way to think about greenhouse-effect decisions underuncertainty. It describes an insightful model for determining the economic costs of limiting carbondioxide emissions produced by burning fossil fuels and provides a solid analytical base forrethinking public policy on the farreaching issue of global warming.Manne and Richels presentregion-by-region estimates of the costs that would underlie an international agreement. Using acomputer model known as Global 2100, they analyze the economic impacts of limiting C02 emissionsunder alternative supply and conservation scenarios. The results clearly indicate that a reductionin emissions is not the sole policy response to potential climate change.Following a summary of thegreenhouse effect, its likely causes, and possible consequences, Manne and Richels take up issuesthat concern the public at large. They provide an overview of Global 2100, look at how the U.S.energy sector is likely to evolve under businessas-usual conditions and under carbon constraints,and describe the concept of "greenhouse insurance." They consider possible global agreements,including an estimate of benefits that might result from trading in an international market inemission rights. They conclude with a technical description directed toward modelingspecialists.Alan Manne is Professor of Operations Research at Stanford University. Richard Richelsis Director of the Energy Analysis and Planning Department at the Electric Power ResearchInstitute.

 

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Contents

A Model of CO2EnergyEconomy Interactions
27
The Costs of Limiting U S CO2 Emissions
47
Decision Making under Uncertainty
67
A Global Cost Analysis
89
Willingness to Pay for Carbon Emission Rights
111
Model Formulation
119
A Decomposition Procedure for International Trade in Carbon
141
An Experiment
151
Nonelectric Energy Supplies NELE TAB
169
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