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Journal of Economic Perspectives—Volume 23, Number 2—Spring 2009—Pages 29–51 The Economic Effects of Climate Change Richard S. J. Tol reenhouse gas emissions are fundamental both to the world’s energy system and to its food production. The production of CO , the predom- 2 Ginant gas implicated in climate change, is intrinsic to fossil fuel combus- tion; specifically, thermal energy is generated by breaking the chemical bonds in the carbohydrates oil, coal, and natural gas and oxidizing the components to CO2 and H O. One cannot have cheap energy without carbon dioxide emissions. 2 Similarly, methane (CH ) emissions, an important greenhouse gas in its own right, 4 are necessary to prevent the build-up of hydrogen in anaerobic digestion and decomposition. One cannot have beef, mutton, dairy, or rice without methane emissions. Climate change is the mother of all externalities: larger, more complex, and more uncertain than any other environmental problem. The sources of greenhouse gas emissions are more diffuse than any other environmental problem. Every company, every farm, every household emits some greenhouse gases. The effects are similarly pervasive. Weather affects agriculture, energy use, health, and many aspects of nature—which in turn affects everything and everyone. The causes and consequences of climate change are very diverse, and those in low-income coun- tries who contribute least to climate change are most vulnerable to its effects. Climate change is also a long-term problem. Some greenhouse gases have an atmospheric life-time measured in tens of thousands of years. The quantities of emissions involved are enormous. In 2000, carbon dioxide emissions alone (and excluding land use change