Climate change is already under way. For governments around the world, the first question is how much of their response should be apportioned to adaptation to warming that is already inevitable, and how much to diminishing what is still avoidable. This summary outlines the basic economic principles underlying RFF researchers' economic analysis of climate change.

Analysis begins with an accounting of the costs and the benefits of any action -- or of inaction. But this accounting is not simple or without controversy. Some costs, like the rise in the price of fuel, are obvious. Others, such as the risk of a changing pattern of rainfall, are much harder to calculate.

The benefits of a coal-fired power plant go to its customers, who depend on it for electricity. But one of the costs of operating the plant, as it emits coal smoke into the atmosphere, is its contribution to climate change. That burden is distributed worldwide and is borne by people far away who draw no benefit from the plant at all. It is also true that the plant's benefits are in the present tense, in the form of the power that its customers use today. But some of its costs, as its emissions add to a changing climate, will fall on people alive decades in the future, perhaps after the plant has fallen obsolete and been taken out of service.

Because most emissions of carbon dioxide are a by-product of generating energy, any policy to reduce those emissions will have a wide range of economic consequences. Modern societies depend on access to reliable electric power and efficient transportation. Any climate policy, other than a decision to do nothing at all, must mean a reduction in carbon dioxide emissions below the business-as-usual trend. The costs may include higher prices for energy, either through taxes or emissions permits, or through the costs of more efficient equipment and technologies to keep carbon out of the air. They may also include the indirect costs of a less flexible, rapid transportation system.

While the costs of reducing emissions may be substantial, any complete accounting of policy options has to acknowledge that the costs of doing nothing are also uncertain and may be very large. A mild warming could be expected to bring benefits to some countries in the form, for example, of longer growing seasons for their crops. But most analysts believe that the balance of benefits and costs would swing heavily adverse if warming increased beyond a very narrow increment. The effects on water supplies, agriculture, and even patterns of human habitation could rapidly develop into a major threat to economic growth and social stability.

		Rethinking Fossil Fuels: The Necessary Step Toward Practical Climate Policy Resources, Summer 2004, Raymond J. Kopp If global greenhouse gas (GHG) emissions are to be stabilized, the world's largest current emitter -- the United States -- along with other industrialized countries must radically curtail the emissions of GHGs, most notably carbon dioxide (CO2). This means that the current primary energy sources of the United States -- which drive both its electricity and transport sectors, and are responsible for carbon dioxide emissions -- must change. But change to what and how?
		Can an Effective Global Climate Treaty Be Based on Sound Science, Rational Economics, and Pragmatic Politics? Robert N. Stavins Discussion Paper 04-28 May 2004
		Energy Resources and Global Development Jeffrey Chow, Raymond J. Kopp, Paul R. Portney Science 302, 1528-1531 (2003) RFF scholars examine the tradeoffs between continued exploitation of fossil fuels, environmental impacts, and economic development. The authors also look at the financial and political consequences should fossil fuel depletion occur more rapidly than expected.
		Economic Analysis and the Formulation of U.S. Climate Policy Michael A. Toman Discussion Paper 02-59 December 2003