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Economic Rationale For Addressing Global Climate Change

Many economists and policymakers have long argued that reducing GHG emissions will burden the U.S. economy. These beliefs though, are giving way to new evidence that addressing global climate change may benefit the economy by increasing resource efficiency, creating new jobs, and spurring technological development. There will be transition costs, and not every industry or individual will come out a winner. But inaction is also costly, increasing regulatory confusion in the private sector and making adapting to the expected impacts of climate change more burdensome.

Many emission abatement policies aimed at increasing energy efficiency in buildings and automobiles are expected to generate positive returns on investment. Some of these specific policy options include lighting retrofits in residential and commercial buildings, increased fuel economy standards for light trucks, and efficiency improvements at existing power plants. Other policies may be more costly, such as increasing wind and solar power generation and implementing carbon capture and storage technology at coal plants. But many of these policies will open up new opportunities. By requiring new practices and technologies across a range of sectors, these policies will allow states and private investors to tap into human capital and create new, “green” jobs.

The pace of recent venture capital investment in green technology suggests that states with favorable market incentives and predictable regulations will benefit from regulating GHG emissions. Business analysts expect that policies aimed at developing new, energy efficient technologies will generate positive returns on investment and create new jobs. As a sign that green technology is expected to be profitable, a number of the driving forces behind the information technology boom of the 1990s are now making the clean tech market their top investment priority.

It is important to standardize GHG regulations across borders. Aligning domestic incentives with those in countries that have already mandated GHG emission reductions will enable U.S. industry, technology, and human capital to remain competitive in the global marketplace. Companies uncertain about the future of inter-state climate change regulation cannot standardize operations across borders, and are forced to delay adaptive capital investments.

Climate change policy that creates clear incentives for individuals, businesses, and industries to reduce GHG emissions will result in lower emissions and more efficient resource use. With these new policies in place, the shared challenge of confronting climate change also becomes an opportunity to create stronger and more resilient economies, locally, nationally, and globally.