ECONOMICS FOR MANAGER

 ECONOMICS FOR MANAGER

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Economics for Manager

Q1

Climate change is a major global issue requiring immediate redress. Arrow’s (2007) article focuses on climate change and its regrettable consequences. The author states that climate change will increase global temperature by 50C due to a high concentration of greenhouse gasses and lower the economic growth by about 1.2% annually by 2200 (Arrow 2007). His main assumptions include that the future cost of global climate change can be avoided by incurring some costs today (Arrow 2007). He reinforces the idea by posing the question whether the benefits of reducing climate change are worth the costs. Arrow (2007) also assumes that people fear risks thus informing them about detrimental effects associated with global warming can greatly reduce emissions. The other assumption is that people are much better off to reduce the emission of CO2 significantly than to suffer and also risk the repercussions of not addressing the issue in the future. 

Q2

Arrow (2007) raises an important point that addressing the issue of climate change today is far much better than doing it in the future and risk irreversible repercussions. First and foremost, renowned climate scientists globally warn that there are less than five years to avoid irremediable impacts of climate change which might occur if the average world temperature rises by more than 20C beyond its preindustrial level (ABC 2017). Some of the consequences include an increase in the intensity and frequency of wildfires, increased severity of cyclones, a decrease in rainfall in most regions, increased incidences of drought, acid rain, and extreme temperature.

The annual global emission of carbon dioxide and other greenhouse gases should reverse from rising every year, as it is currently the case, to decreasing annually in order to avoid these and others challenges. According to ABC (2017), the globe has already warmed by about 0.80C above the pre-industrial levels. The author projects that global temperature will rise further by 0.50C as the Earth continues reacting to the emissions previously released in the atmosphere, most of which has remained there for more than ten years. Take together it implies that climate change corresponding to about 1.30C increase in temperature is currently ‘locked in’. The essence of addressing the issue now and not in the future is to avoid additional emissions in order to reverse the situation. The world should try to maintain the rise in temperature at the current level and try to reverse the course gradually.

Exceeding the level of 20C will also decrease the Earth’s low capacity to offset some of the impacts of climate change thus it is imperative to act now. ABC (2017) warns that if the global temperature increase by 2.50C or higher, land ecosystems might release carbon instead of absorbing it. In such case, the ecosystem will contribute to climate change rather than preventing it. IPCC’s (2007) calculations indicate that if the current world temperature increase is to be maintained at 2.00C to 2.40C, then the ‘‘CO2 equivalent’’ concentration should not go beyond between 445 and 490 parts per million (ppm) (ABC 2017). Notably, the “CO2 concentration” is applied as a joint measure of all the Kyoto GHG.

Research shows that the current CO2 equivalent emissions are about 445 but might reach 550ppm by 2035 (Arrow 2007). Arrow (2007) warns that concentration exceeding 445 ppm will raise the temperature by at least 20 C. The author is concerned that continuance of “business as usual” will result in a soaring level of CO2 by 2200 with a 50 percent chance of over and above an increase of 50C (Arrow 2007, p. 2). ABC (2017) suggests the society should halt the increase in the level of global CO2 equivalent by the end of 2017 and then reduce the emissions steadily and drastically thereafter in order to meet the 20 C guardrail target. Although nations, communities, and individuals around the world are putting in place effective strategies to effect the change, more strategies are needed because time remaining to act is short.

Stern (2006) and other top economists have clearly illustrated that climate change results from various market failures that nations need to address to reverse the current global warming trend. One of the greatest failures results from the cost of climate not being included in the prices of services and goods whose production generates greenhouse gas emissions hence leading to notions such as ‘cheap’ fossil (Gillingham and Sweeney 2010, p. 74). However, the governments or environmental regulatory agencies can correct the externality by introducing cost on firms involved in pollution. Such cost might include pollution tax on inputs for goods and services that contribute to pollution or limit pollution. The policy will make the prices rise, and discourage pro