Chapter 2
The Economics of Climate Change
Summary of Chapter 2: The Economics of Climate Change
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hapter 2 explores what is meant by “economic impacts” of climate change – that climate change will likely alter the supply and demand of many goods and services. This will change prices. In many cases, climate change will decrease the welfare of either consumers, producers, or both. The chapter provides a brief explanation of how these impacts are estimated using integrated environmental-economic assessment models and macroeconomic models. These models simulate the interaction between environmental and economic goods and services on the macro and micro-economic levels. The chapter also provides justifications for making very preliminary calculations of the economic value of climate change damages using existing data and methods that are available. These calculations are helpful in identifying the potential scale of economic impacts due to climate change as well as areas of vulnerability. Finally, the chapter describes how models and methods can be useful not only to estimate the economic impacts of climate change, but also can be useful in general as planning and management tools in natural resource sectors. The methodological tools and data used for estimating the economic impacts of climate change are often the same as those used for effective planning and management of natural resource sectors.