Background Reading for Climate Change Economics

Experience with Market-Based Environmental Policy Instruments, by Robert Stavins: An excellent review of the different types of market-based mechanisms available to policy-makers for dealing with environmental problems - with lots of examples of real policies in action.

Pricing Pollution, by Ted Gayer: Down to the basics on why pollution is an example of a market failure and an explanation of why using policy to create a price for emissions leads to a better societal outcome. 

Meaningful and Cost Effective Climate Policy:  The Case for Cap and Trade, by Janet Peace and Robert Stavins: A Center report in which we hope to leave the reader with a better understanding of the issues, the rhetoric, and the fundamental reasons why cap and trade is the most promising approach to address the threat of climate change.

Tragedy of the Commons, by Garrett Hardin: A classic paper in resource economics. Notable for describing how the free-market can lead to a less than optimal long-term outcome when a public good (like the atmosphere) is not properly managed or regulated. 

Problem of the Commons: Still Unsettled After 100 Years, by Robert Stavins: A paper written for the 100-year anniversary issue of the American Economic Review. Section 1 is technical, and Section 2 gives an excellent overview of the concept of cost-effectiveness in environmental policy-making, as well as Pigovian taxes and Coasian bargaining (the intellectual foundations for carbon taxes and cap-and-trade policies, respectively).  

An Introduction to the Economics of Climate Change Policy, by John Weyant: Written for us more than 10 years ago, this is still a relevant introduction to how economists use models to forecast the costs and benefits of proposed climate change policies. 

A Green Employment Tax Swap:  Using a Carbon Tax to Finance Payroll Tax Relief, by Gilbert Metcalf: A policy proposal from WRI and the Brookings Institution for using a tax on carbon dioxides emissions to pay for a reduction in payroll taxes. An excellent example of the use of revenue recycling and Pigovian tax principles.