Economic analysis of climate change

Economic analysis of climate change investigates the economic impacts of the effects of climate change, the costs and benefits of preventing climate change, and the cost of adapting to a changing climate. These analyses can focus on: • Global aggregate economic costs of climate change (i.e. global climate damages) • Sectoral or regional economic costs of climate change (e.g. costs to agriculture sector or energy services) • Economic costs and benefits of implementing climate change mitigation and adaptation strategies • Estimating the projected impacts to society per additional metric tonne of carbon emissions (social cost of carbon) • informing policy decisions, interntionally or nationally The economic impacts of climate change also include any mitigation (for example, limiting the global average temperature below 2 °C) or adaption (for example, building flood defences) employed by nations or groups of nations, which might infer economic consequences. Some regions or sectors may benefit from low levels of warming, for example through lower energy demand or improved crop yields. In some areas, policies designed to mitigate climate change may contribute towards other sustainable development objectives, such as abolishing fossil fuel subsidies which would reduce air pollution and thus save lives. Direct global fossil fuel subsidies reached $319 billion in 2017, and $5.2 trillion when indirect costs such as air pollution are priced in. In other areas, the cost of climate change mitigation might divert resources away from other socially and environmentally beneficial investments (the opportunity costs of climate change policy). == Types of economic models ==

Many economic tools are employed to understand the economic aspects around impacts of climate change, climate change mitigation and adaptation. Several approaches exist. Econometric models (statistical models) are used to estimate the impacts of weather and climate on economic variables, either globally or for a specific sector. Structural economic models look at market and non-market impacts affecting the whole economy through its inputs and outputs. Process models simulate physical, chemical and biological processes under climate change, and the economic effects. In other words, the trade-offs between climate change impacts, adaptation, and mitigation are made explicit. The costs of each policy and the outcomes modelled are converted into monetary estimates. The models incorporate aspects of the natural, social, and economic sciences in a highly aggregated way. Compared to other climate-economy models (including process-based IAMs), they do not have the structural detail necessary to model interactions with energy systems, land-use etc. and their economic implications. This approach can identify effects of temperature, rainfall, drought and storms on agriculture, energy demand, industry and other economic activity. Panel data of weather variation over time and space, e.g. from ground station observations or (interpolated) gridded data is aggregated for economic analysis to investigate effects on national economies. These studies show that for example, hot years are linked to lower income growth in poor countries, and low rainfall is linked to reduced incomes in Africa. Other econometric studies show that there are negative impacts of hotter temperatures on agricultural output, on labour productivity and in outdoor industries such as mining and forestry. The analyses are used to estimate the costs of climate change in the future. == Analytical frameworks ==

Cost–benefit analysis Standard cost–benefit analysis (CBA) has been applied to the problem of climate change. In a CBA framework, the negative and positive impacts associated with a given action are converted into monetary estimates. This is also referred to as a monetized cost–benefit framework. Various types of model can provide information for CBA, including energy-economy-environment models (process models) that study energy systems and their transitions. Some of these models may include a physical model of the climate. Computable General Equilibrium (CGE) structural models investigate effects of policies (including climate policies) on economic growth, trade, employment, and public revenues. However, most CBA analyses are produced using aggregate integrated assessment models. These aggregate-type IAMs are particularly designed for doing CBA of climate change. The CBA framework requires (1) the valuation of costs and benefits using willingness to pay (WTP) or willingness to accept (WTA) compensation as a measure of value, and (2) a criterion for accepting or rejecting proposals: and risk accounted for using certainty equivalents. Values over time are then discounted to produce their equivalent present values. The valuation of costs and benefits of climate change can be controversial because some climate change impacts are difficult to assign a value to, e.g., ecosystems and human health. For (2), the standard criterion is the Kaldor–Hicks compensation principle. CBA has several strengths: it offers an internally consistent and global comprehensive analysis of impacts. However, there are many uncertainties that affect cost–benefit analysis, for example, sector- and country-specific damage functions. Damage functions in 2006 (damage costs measured as percent GDP).Damage functions play an important role in estimating the costs associated with potential damages caused by climate-related hazards. They quantify the relationship between the intensity of the hazard, other factors such as the vulnerability of the system, and the resulting damages. For example, damage functions have been developed for sea level rise, agricultural productivity, or heat effects on labour productivity. Cost-effectiveness analysis Cost-Effectiveness Analysis (CEA) is preferable to CBA when the benefits of impacts, adaptation and mitigation are difficult to estimate in monetary terms. A CEA can be used to compare different policy options for achieving a well-defined goal. CEA involves the costing of each option, providing a cost per unit of effectiveness. For example, cost per tonne of GHG reduced ($/tCO2). This allows the ranking of policy options. This ranking can help decision-maker to understand which are the most cost-effective options, i.e. those that deliver high benefits for low costs. CEA can be used for minimising net costs for achieving pre-defined policy targets, such as meeting an emissions reduction target for a given sector. Some authors have focused on a disaggregated analysis of climate change impacts. "Disaggregated" refers to the choice to assess impacts in a variety of indicators or units, e.g., changes in agricultural yields and loss of biodiversity. By contrast, monetized CBA converts all impacts into a common unit (money), which is used to assess changes in social welfare. countries emit more per person than poorer (developing) countries. Emissions are roughly proportional to GDP per person, though the rate of increase diminishes with an average GDP/pp of about $10,000. Scenario-based assessments The long time scales and uncertainty when it comes to global warming have led analysts to develop "scenarios" of future environmental, social and economic changes. These scenarios can help governments understand the potential consequences of their decisions. The projected temperature in climate change scenarios is subject to scientific uncertainty (e.g., the relationship between concentrations of GHGs and global mean temperature, which is called the climate sensitivity). Projections of future atmospheric concentrations based on emission pathways are also affected by scientific uncertainties, e.g., over how carbon sinks, such as forests, will be affected by future climate change. One of the economic aspects of climate change is producing scenarios of future economic development. Future economic developments can, for example, affect how vulnerable society is to future climate change, what the future impacts of climate change might be, as well as the level of future GHG emissions. Scenarios are neither "predictions" nor "forecasts" but are stories of possible futures that provide alternate outcomes relevant to a decision-maker or other user. Another approach is that of uncertainty analysis, In a cost-benefit analysis, an acceptable risk means that the benefits of a climate policy outweigh the costs of the policy. The rule used by many decision makers is that a risk is acceptable if the anticipated net present value is positive. In other words, it is the average expected outcome for a particular decision. This criterion has been justified under the conditions that: • a policy's benefits and costs have known probabilities In the scientific literature, there is sometimes a focus on "best estimate" or "likely" values of climate sensitivity. However, from a risk management perspective, values outside of "likely" ranges are relevant, because, though these values are less probable, they could be associated with more severe climate impacts (the statistical definition of risk = probability of an impact × magnitude of the impact). Analysts have also looked at how uncertainty over climate sensitivity affects economic estimates of climate change impacts. Policy guidance from cost-benefit analysis (CBA) can be extremely divergent depending on the assumptions employed. Hassler et al use integrated assessment modeling to examine a range of estimates and what happens at extremes. Iterative risk management Two related ways of thinking about the problem of climate change decision-making in the presence of uncertainty are iterative risk management This involves making a series of observations before making a final decision. An approach based on sequential decision making recognizes that, over time, decisions related to climate change can be revised in the light of improved information. Another way of viewing the problem is to look at the potential irreversibility of future climate change impacts (e.g., damages to biomes and ecosystems) against the irreversibility of making investments in efforts to reduce emissions. The idea is that a reasonable response to uncertainty is to invest in a wide portfolio of options to spread risk. It is important to compare alternative portfolios of options across different future climate change scenarios in order to take into account uncertainty in climate impacts, GHG emission trends etc. The options should ideally be diversified to be effective in different scenarios: i.e. some options suited for a no/low climate change scenario, with other options being suited for scenarios with severe climate changes. == Costs of climate impacts ==

At the global level vary widely, and even this approach to predicting damage does not consider impacts of climate tipping points, climate-driven extreme events, human health impacts, resource or migration-driven conflict, geopolitical tension, nature-driven risks, or sea level rise. '' article estimated future damages from past emissions to be at least an order of magnitude larger than historical damages from the same emissions. Global aggregate costs are all the predicted impacts of climate change across all market sectors (e.g. including costs to agriculture, energy services and tourism) and also includes non-market impacts (e.g. on ecosystems and human health). Another study, which checked the data from the last 120 years, found that climate change has already reduced welfare by 29% and further temperature rise will bring this number to 47%. The temperature rise between 1960 and 2019 cut current GDP per person by 18%. A rise by 1 degree in global temperature reduces global GDP by 12%. An increase of 3 degrees by 2100, will reduce capital by 50%. The effects are like experiencing the 1929 Great Depression permanently. The associated social cost of carbon is 1065 dollars per tonne of CO2. Global economic losses due to extreme weather, climate and water events are increasing. Costs have increased sevenfold from the 1970s to the 2010s. Direct losses from disasters have averaged above US$330 billion annually between 2015 and 2021. Climate change has contributed to the increased probability and magnitude of extreme events. When a vulnerable community is exposed to extreme climate or weather events, disasters can occur. Socio-economic factors have contributed to the observed trend of global disaster losses, such as population growth and increased wealth. This shows that increased exposure is the most important driver of losses. However, part of these are also due to human-induced climate change. Extreme event attribution quantifies how climate change is altering the probability and magnitude of extreme events. On a case-by-case basis, it is feasible to estimate how the magnitude and/or probability of the extreme event has shifted due to climate change. These attributable changes have been identified for many individual extreme heat events and rainfall events. Using all available data on attributable changes, one study estimated the global losses to average US$143 billion per year between 2000 and 2019. This includes a statistical loss of life value of 90 billion and economic damages of 53 billion per year. A 2026 study published in Nature estimated that, from 1990 through 2020, carbon dioxide emissions in the US caused $10.2 trillion in cumulative damages by 2020, with about 30% occurring within the US itself. Economic impacts also include inflation from rising insurance premiums, energy costs and food prices. In an Oxford Economics study high emission scenario, a temperature rise of 2 degrees by the year 2050 would reduce global GDP by 2.5–7.5%. By the year 2100 in this case, the temperature would rise by 4 degrees, which could reduce the global GDP by 30% in the worst case. One 2018 study found that potential global economic gains if countries implement mitigation strategies to comply with the 2 °C target set at the Paris Agreement are in the vicinity of US$17 trillion per year up to 2100, compared to a very high emission scenario. Underestimation of economic impacts Studies in 2019 suggested that economic damages due to climate change have been underestimated, and may be severe, with the probability of disastrous tail-risk events. Tipping points are critical thresholds that, when crossed, lead to large, accelerating and often irreversible changes in the climate system. The science of tipping points is complex and there is great uncertainty as to how they might unfold. Economic analyses often exclude the potential effect of tipping points. A 2018 study noted that the global economic impact is underestimated by a factor of two to eight, when tipping points are excluded from consideration. Therefore, their calculations may be an underestimate. The study has received both criticism and support from other economists. By region Other studies investigate economic losses by GDP change per country or by per country per capita. Findings show large differences among countries and within countries. The estimated GDP changes in some developing countries are similar to some of the worst country-level losses during historical economic recessions. A United States government report in November 2018 raised the possibility of US GDP going down 10% as a result of the warming climate, including huge shifts in geography, demographics and technology. By sector A number of economic sectors will be affected by climate change, including the livestock, forestry, and fisheries industries. Other sectors sensitive to climate change include the energy, insurance, tourism and recreation industries. However, it is usual for studies to aggregate the number of 'years of life lost' adjusted for years living with disability to measure effects on health. It has been estimated that 3.5 million people die prematurely each year from air pollution from fossil fuels. The health benefits of meeting climate goals substantially outweigh the costs of action. The health benefits of phasing out fossil fuels measured in money (estimated by economists using the value of life for each country) are substantially more than the cost of achieving the 2 degree C goal of the Paris Agreement. Agriculture Industry Carbon-intensive industries and investors are expected to experience a significant increase in stranded assets with a potential ripple effect throughout the world economy. For example, food prices could rise by as much as 3% per year due to climate change impacts. Utility of aggregated assessment There are a number of benefits of using aggregated assessments to measure economic impacts of climate change. == Costs of mitigation ==

Climate change mitigation consist of human actions to reduce greenhouse gas emissions or to enhance carbon sinks that absorb greenhouse gases from the atmosphere. A study published in 2024 showed that keeping global warming below 2 °C may cost about 1% of world GDP each year, but could prevent much larger losses of 10–20% of GDP by mid century. Global costs of mitigation Mitigation cost estimates depend critically on the baseline (in this case, a reference scenario that the alternative scenario is compared with), the way costs are modelled, and assumptions about future government policy. Macroeconomic costs in 2030 were estimated for multi-gas mitigation (reducing emissions of carbon dioxide and other GHGs, such as methane) as between a 3% decrease in global GDP to a small increase, relative to baseline. Macroeconomic cost estimates were mostly based on models that assumed transparent markets, no transaction costs, and perfect implementation of cost-effective policy measures across all regions throughout the 21st century. Regional costs of mitigation Several studies have estimated regional mitigation costs. The conclusions of these studies are as follows: • Regional abatement costs are largely dependent on the assumed stabilization level and baseline scenario. The allocation of emission allowances/permits is also an important factor, but for most countries, is less important than the stabilization level. • Other costs arise from changes in international trade. Fossil fuel-exporting regions are likely to be affected by losses in coal and oil exports compared to baseline, while some regions might experience increased bio-energy (energy derived from biomass) exports. • Allocation schemes based on current emissions (i.e., where the most allowances/permits are given to the largest current polluters, and the fewest allowances are given to smallest current polluters) lead to welfare losses for developing countries, while allocation schemes based on a per capita convergence of emissions (i.e., where per capita emissions are equalized) lead to welfare gains for developing countries. Sharing of mitigation costs There have been different proposals on how to allocate responsibility for cutting emissions: • Egalitarianism: this system interprets the problem as one where each person has equal rights to a global resource, i.e., polluting the atmosphere. • Basic needs: this system would have emissions allocated according to basic needs, as defined according to a minimum level of consumption. Consumption above basic needs would require countries to buy more emission rights. From this viewpoint, developing countries would need to be at least as well off under an emissions control regime as they would be outside the regime. • Proportionality and polluter-pays principle: Proportionality reflects the ancient Aristotelian principle that people should receive in proportion to what they put in, and pay in proportion to the damages they cause. This has a potential relationship with the "polluter-pays principle", which can be interpreted in a number of ways: • Historical responsibilities: this asserts that allocation of emission rights should be based on patterns of past emissions. Two-thirds of the stock of GHGs in the atmosphere at present is due to the past actions of developed countries. • Comparable burdens and ability to pay: with this approach, countries would reduce emissions based on comparable burdens and their ability to take on the costs of reduction. Ways to assess burdens include monetary costs per head of population, as well as other, more complex measures, like the UNDP's Human Development Index. • Willingness to pay: with this approach, countries take on emission reductions based on their ability to pay along with how much they benefit from reducing their emissions. • Equal per capita entitlements: this is the most widely cited method of distributing abatement costs, and is derived from egalitarianism. This approach can be divided into two categories. In the first category, emissions are allocated according to national population. In the second category, emissions are allocated in a way that attempts to account for historical (cumulative) emissions. • Status quo: with this approach, historical emissions are ignored, and current emission levels are taken as a status quo right to emit. An analogy for this approach can be made with fisheries, which is a common, limited resource. The analogy would be with the atmosphere, which can be viewed as an exhaustible natural resource. In international law, one state recognized the long-established use of another state's use of the fisheries resource. It was also recognized by the state that part of the other state's economy was dependent on that resource. == Costs of adaptation ==

Efficiency and equity No consensus exists on who should bear the burden of adaptation and mitigation costs. On a utilitarian basis, which has traditionally been used in welfare economics, an argument can be made for richer countries taking on most of the burdens of mitigation. However, another result is possible with a different modeling of impacts. If an approach is taken where the interests of poorer people have lower weighting, the result is that there is a much weaker argument in favour of mitigation action in rich countries. Valuing climate change impacts in poorer countries less than domestic climate change impacts (both in terms of policy and the impacts of climate change) would be consistent with observed spending in rich countries on foreign aid A third approach looks at the problem from the perspective of who has contributed most to the problem. Because the industrialized countries have contributed more than two-thirds of the stock of human-induced GHGs in the atmosphere, this approach suggests that they should bear the largest share of the costs. This stock of emissions has been described as an "environmental debt". Part of this observation stems from the fact that greenhouse gas emissions come mainly from high-income countries, while low-income countries are affected by it negatively. So, high-income countries are producing significant amounts of emissions, but the impacts are unequally threatening low-income countries, who do not have access to the resources to recover from such impacts. This further deepens the inequalities within the poor and the rich, hindering sustainability efforts. Impacts of climate change could even push millions of people into poverty. Insurance and markets Traditional insurance works by transferring risk to those better able or more willing to bear risk, and also by the pooling of risk. Disease, rising seas, reduced crop yields, and other harms driven by climate change will likely have a major deleterious impact on the economy by 2050 unless the world sharply reduces greenhouse gas emissions in the near term, according to a number of studies, including a study by the Carbon Disclosure Project and a study by insurance giant Swiss Re. The Swiss Re assessment found that annual output by the world economy will be reduced by $23 trillion annually, unless greenhouse gas emissions are adequately mitigated. As a consequence, according to the Swiss Re study, climate change will impact how the insurance industry prices a variety of risks. Effects of economic growth and degrowth scenarios on emissions scenarios, where economic output either declines or declines in terms of contemporary economic metrics such as current GDP, have been neglected in considerations of 1.5 °C scenarios reported by the Intergovernmental Panel on Climate Change (IPCC). They find that some degrowth scenarios "minimize many key risks for feasibility and sustainability compared to technology-driven pathways" with a core problem of such being feasibility in the context of contemporary decision-making of politics and globalized rebound- and relocation-effects. This is supported by other studies which state that absolute decoupling is highly unlikely to be achieved fast enough to prevent global warming over 1.5 °C or 2 °C, even under optimistic policy conditions. == Economics of climate change mitigation ==

The economics of climate change mitigation is a contentious part of climate change mitigation – action aimed to limit the dangerous socio-economic and environmental consequences of climate change. Climate change mitigation centres on two main strategies: the reduction of greenhouse gas (GHG) emissions and the preservation and expansion of sinks which absorb greenhouse gases, including the sea and forests. Policies and approaches to reduce emissions Price signals A carbon price is a system of applying a price to carbon emissions, as a method of emissions mitigation. Potential methods of pricing include carbon emission trading, results-based climate finance, crediting mechanisms and more. Carbon pricing can lend itself to the creation of carbon taxes, which allows governments to tax emissions. It is almost a consensus that carbon taxing is the most cost-effective method of having a substantial and rapid response to climate change and carbon emissions. However, backlash to the tax includes that it can be considered regressive, as the impact can be damaging disproportionately to the poor who spend much of their income on energy for their homes. Still, even with near universal approval, there are issues regarding both the collection and redistribution of the taxes. One of the central questions being how the newly collected taxes will be redistributed. Some or all of the proceeds of a carbon tax can be used to stop it disadvantaging the poor. Structural market reforms In addition to the implementation of command-and-control regulations (as with a carbon tax), governments can also use market-based approaches to mitigate emissions. One such method is emissions trading where governments set the total emissions of all polluters to a maximum and distribute permits, through auction or allocation, that allow entities to emit a portion, typically one ton of carbon dioxide equivalent (CO2e), of the mandated total emissions. In other words, the amount of pollution an entity can emit in an emissions trading system is limited by the number of permits they have. If a polluter wants to increase their emissions, they can only do so after buying permits from those who are willing to sell them. This uncertainty in price is especially disliked by businesses since it prevents them from investing in abatement technologies with confidence which hinders efforts for mitigating emissions. as well as acknowledging and moving beyond the limits of current economics such as GDP. Some argue that for effective climate change mitigation degrowth has to occur, while some argue that eco-economic decoupling could limit climate change enough while continuing high rates of traditional GDP growth. There is also research and debate about requirements of how economic systems could be transformed for sustainability – such as how their jobs could transition harmoniously into green jobs – a just transition – and how relevant sectors of the economy – like the renewable energy industry and the bioeconomy – could be adequately supported. While degrowth is often believed to be associated with decreased living standards and austerity measures, many of its proponents seek to expand universal public goods (such as public transport), increase health (fitness, wellbeing and freedom from diseases) and increase various forms of, often unconventional commons-oriented, labor. To this end, the application of both advanced technologies and reductions in various demands, including via overall reduced labor time or sufficiency-oriented strategies, are considered to be important by some. Assessing costs and benefits GDP The costs of mitigation and adaptation policies can be measured as a percentage of GDP. A problem with this method of assessing costs is that GDP is an imperfect measure of welfare. There may also be ancillary costs. Flexibility Flexibility is the ability to reduce emissions at the lowest cost. The greater the flexibility that governments allow in their regulatory framework to reduce emissions, the lower the potential costs are for achieving emissions reductions (Markandya et al., 2001:455). • "When" flexibility potentially lowers costs by allowing reductions to be made at a time when it is most efficient to do so. Including carbon sinks in a policy framework is another source of flexibility. Tree planting and forestry management actions can increase the capacity of sinks. Soils and other types of vegetation are also potential sinks. There is, however, uncertainty over how net emissions are affected by activities in this area. The choice of discount rate has a large effect on the result of any climate change cost analysis (Halsnæs et al., 2007:136). Using too high a discount rate will result in too little investment in mitigation, but using too low a rate will result in too much investment in mitigation. In other words, a high discount rate implies that the present-value of a dollar is worth more than the future-value of a dollar. Discounting can either be prescriptive or descriptive. The descriptive approach is based on what discount rates are observed in the behaviour of people making every day decisions (the private discount rate) (IPCC, 2007c:813). In the prescriptive approach, a discount rate is chosen based on what is thought to be in the best interests of future generations (the social discount rate). The descriptive approach can be interpreted as an effort to maximize the economic resources available to future generations, allowing them to decide how to use those resources (Arrow et al., 1996b:133–134). The prescriptive approach can be interpreted as an effort to do as much as is economically justified to reduce the risk of climate change. The DICE model incorporates a descriptive approach, in which discounting reflects actual economic conditions. In a recent DICE model, DICE-2013R Model, the social cost of carbon is estimated based on the following alternative scenarios: (1) a baseline scenario, when climate change policies have not changed since 2010, (2) an optimal scenario, when climate change policies are optimal (fully implemented and followed), (3) when the optimal scenario does not exceed 2˚C limit after 1900 data, (4) when the 2˚C limit is an average and not the optimum, (5) when a near-zero (low) discount rate of 0.1% is used (as assumed in the Stern Review), (6) when a near-zero discount rate is also used but with calibrated interest rates, and (7) when a high discount rate of 3.5% is used. According to Markandya et al. (2001:466), discount rates used in assessing mitigation programmes need to at least partly reflect the opportunity costs of capital. In developed countries, Markandya et al. (2001:466) thought that a discount rate of around 4–6% was probably justified, while in developing countries, a rate of 10–12% was cited. The discount rates used in assessing private projects were found to be higher – with potential rates of between 10% and 25%. When deciding how to discount future climate change impacts, value judgements are necessary (Arrow et al., 1996b:130). IPCC (2001a:9) found that there was no consensus on the use of long-term discount rates in this area. The prescriptive approach to discounting leads to long-term discount rates of 2–3% in real terms, while the descriptive approach leads to rates of at least 4% after tax – sometimes much higher (Halsnæs et al., 2007:136). Even today, it is difficult to agree on an appropriate discount rate. The approach of discounting to be either prescriptive or descriptive stemmed from the views of Nordhaus and Stern. Nordhaus takes on a descriptive approach which "assumes that investments to slow climate change must compete with investments in other areas". While Stern takes on a prescriptive approach in which "leads to the conclusion that any positive pure rate of time preference is unethical". In Stern's view, the pure rate of time preference is defined as the discount rate in a scenario where present and future generations have equal resources and opportunities. A zero pure rate of time preference in this case would indicate that all generations are treated equally. The future generation do not have a "voice" on today's current policies, so the present generation are morally responsible to treat the future generation in the same manner. He suggests for a lower discount rate in which the present generation should invest in the future to reduce the risks of climate change. Assumptions are made to support estimating high and low discount rates. These estimates depend on future emissions, climate sensitivity relative to increase in greenhouse gas concentrations, and the seriousness of impacts over time. Long-term climate policies will significantly impact future generations and this is called intergenerational discounting. Factors that make intergenerational discounting complicated include the great uncertainty of economic growth, future generations are affected by today's policies, and private discounting will be affected due to a longer "investment horizon". Discounting is a relatively controversial issue in both climate change mitigation and environmental economics due to the ethical implications of valuing future generations less than present ones. Non-economists often find it difficult to grapple with the idea that thousands of dollars of future costs and benefits can be valued at less than a cent in the present after discounting. Economic barriers to addressing climate change mitigation Economic components like the stock market underestimate or cannot value social benefits of climate change mitigation. Climate change is largely an externality, despite a limited recent internalization of impacts that previously were fully 'external' to the economy. Consumers can be affected by policies that relate to e.g. ethical consumer literacy, the available choices they have, transportation policy, product transparency policies, and larger-order economic policies that for example facilitate large-scale shifts of jobs. ==See also==