Benefits of climate policies: Some tentative calculations

Abstract

Consequences for the Norwegian economy of an active policy against anthropogenic climate change can be analyzed by use of an economic model evaluating the differences between a reference scenario without control policies and alternative paths using economic incentives to reduce emissions of greenhouse gases. In traditional economic models the effect of the new taxes usually appears as reduced growth in macroeconomic indicators such as GDP, gross production and private consumption. When measures against climate change nevertheless are contemplated, it is due to a belief that the benefits of a policy more than outweighs the costs. Many benefits are hard to quantify. This is true for instance for the effects associated with the general welfare of people under different climatic conditions. However, it is possible to associate some tentative figures with some of the benefits likely to emerge from an introduction of a vigorous climate policy. In this paper we try to evaluate some usually neglected benefits associated with an introduction of a carbon tax. The benefits emerge from reduction in local pollution levels and the ensuing reduction in environmental damages to forests and lakes, health damages and damages to certain types of materials. In addition, benefits accruing from reduced traffic congestion, road damage, traffic accidents and noise levels are quantified. We find that the benefits thus accounted for go a long way toward compensating the economic loss measured as a reduction in GDP by the macroeconomic model MODAG. The uncertainty in the estimates of the benefits is assessed, and distributional consequences of the carbon tax are analyzed.