394 section 7 Economic Growth and Productivity
worldwide economic growth. The biggest of these issues involves the impact of fossil-
fuel consumption on the world’s climate.
Burning coal and oil releases carbon dioxide into the atmosphere. There is broad sci-
entific consensus that rising levels of carbon dioxide and other gases are causing a
greenhouse effect on the Earth, trapping more of the sun’s energy and raising the
planet’s overall temperature. And rising temperatures may impose high human and
economic costs: rising sea levels may flood coastal areas; changing climate may disrupt
agriculture, especially in poor countries; and so on.
The problem of climate change is clearly linked to economic growth. Figure 39.3
shows carbon dioxide emissions from the United States, Europe, and China since 1980.
Historically, the wealthy nations have been responsible for the bulk of these emissions
because they have consumed far more energy per person than poorer countries. As
China and other emerging economies have grown, however, they have begun to con-
sume much more energy and emit much more carbon dioxide.Is it possible to continue long - run economic growth while curbing the emissions of
greenhouse gases? The answer, according to most economists who have studied the issue, is
yes. It should be possible to reduce greenhouse gas emissions in a wide variety of ways, rang-
ing from the use of non -fossil -fuel energy sources such as wind, solar, and nuclear power; to
preventive measures such as carbon sequestration (capturing carbon dioxide and storing
it); to simpler things like designing buildings so that they’re easier to keep warm in winter
and cool in summer. Such measures would impose costs on the economy, but the best
available estimates suggest that even a large reduction in greenhouse gas emissions over the
next few decades would only modestly dent the long-term rise in real GDP per capita.
The problem is how to make all of this happen. Unlike resource scarcity, environ-
mental problems don’t automatically provide incentives for changed behavior. Pollu-
tion is an example of a negative externality,a cost that individuals or firms impose on
others without having to offer compensation. In the absence of government interven-
tion, individuals and firms have no incentive to reduce negative externalities, which is
why it took regulation to reduce air pollution in America’s cities. And as Nicholas
Stern, the author of an influential report on climate change, put it, greenhouse gas
emissions are “the mother of all externalities.”figure 39.3
Climate Change and Growth
Greenhouse gas emissions are positively
related to growth. As shown here by the
United States and Europe, wealthy coun-
tries have historically been responsible for
the great bulk of greenhouse gas emissions
because of their richer and faster-growing
economies. As China and other emerging
economies have grown, they have begun to
emit much more carbon dioxide.
Source:Energy Information Administration.Carbon dioxide
emissions
(millions of
metric tons)
7,000
6,000
5,000
4,000
3,000
2,000
1,000Year1980 1985 1990 1995 2000 2006EuropeUnited StatesChina