ARE OPTIMAL CO2 EMISSIONS REALLY OPTIMAL - 4 CRITICAL ISSUES FOR ECONOMISTS IN THE GREENHOUSE

Although the greenhouse effect is by many considered as one of the mos t serious environmental problems, several economic studies of the gree nhouse effect, most notably Nordhaus's DICE model, suggest that it is optimal to allow the emissions of greenhouse gases (GHG) to increase b y a factor of three over the next century. Other studies have found th at substantial reductions can be justified on economic grounds. This p aper explores into the reasons for these differences and identifies fo ur (partly overlapping) crucial issues that have to be dealt with when analysing the economics of the greenhouse effect: low-probability but catastrophic events; cast evaluation methods; the choice of discount rare; the choice of decision criterion. The paper shows that (i) these aspects are crucial for the policy conclusions drawn from models of t he economics of climate change, and that (ii) ethical choices have to be made for each of these issues. This fact needs wider recognition si nce economics is very often perceived as a value neutral tool that can be used to provide policy makers with ''optimal'' policies.