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Literature Review On Climate Change Economics


Task: Literature review: Analysis of the recent papers (focusing on the statistical methods included in the papers)

Learning Outcomes Assessed
LO1 Identify basic statistical concepts

LO2 Apply basic techniques to examine economic issues using Excel

LO3 Interpret simple statistical data

LO4 Present work with clarity and accuracy

Global negotiations to reduce greenhouse gas (GHG) emissions have so far failed to produce an agreement. Even if negotiations succeeded, however, a binding treaty could not be ratified or implemented in many nations due to inadequate public support for emissions reductions. The scientific consensus on the reality and risks of anthropogenic climate change, an externality that is unprecedentedly large, complex, and uncertain (Tol, 2009), has never been stronger, yet public support for action in many nations remains weak.

You are required to produce a critical review of the literature on the economics of the climate change, in particular on the global agreement on emissions reductions. The literature review should show that you have read around the subject, understood the various perspectives on it, and looked at how other researchers have studied it and what they have found out. The literature review is more than a summary or a list of what has been written about your research issue. Your interpretation and comments on the literature is important in this section, but it should not contain your personal opinions unless they are supported by references. Literature review should contain at least 7 references. Literature review is an important part of your research, so please read about how and why you conduct a literature review in the core texts.


According to the research on climate change economics, the abrupt changes in the global climatic conditions are a matter of serious concern, all over the world. Emission of greenhouse gases like carbon dioxide (CO2), methane, nitrous oxide and several others from human activities have enhanced the temperature of the globe by around 10 from the pre-industrial period. Potential change in the climate is identified to have a range of impact on health allergy and physiology. The changing climate also relates to extreme weather events like storms, droughts, floods, heat waves, and the rise of the sea level, destruction of the water system as well as altered growth of crops. The present study relates the critical review of literature that is based on the climate change economics in particular to the global agreements on emission reduction.

Critical literature review
In recent research conducted by Ritchie and Roser, (2017), it has been explained that the average temperature of the globe has increased by more than 10 from the pre-industrial period. It has been further emphasised by the researcher that in the last few decades the temperature of the globe has risen by 0.70 from the baseline maintained in the 1990s. Apart from that, the research also indicates that the concentration of CO2 in the atmosphere is now at the highest levels. The emission of CO2 has increased to over 36 billion tons from 1900. The major problem that is addressed by the researcher in this study on climate change economics is that if the growing CO2 emission is related to economic growth then why do countries possess different levels of per capita CO2 emissions rather than having similar types of GDP per capita levels? The researcher has explained that an economy that is powered by coal-fired energy is likely to generate greater CO2 emission on the contrary to an energy system that uses a higher percentage of renewable energy. Moreover, it is also explained that there are two key variables for any economy that can affect the CO2 intensity that is the energy efficiency and carbon efficiency, which is a very significant finding of this paper. In subsequent research on climate change economics, Weldemichael and Assefa, (2016) has stated that when the economy of a country transits from manufacturing output to service-based output then there is a need for less energy production, which supports the finding from the initial article, further. Therefore, per unit of GDP less energy is used that results in energy efficiency.

According to Althor et al., (2016), the export of harm due to emission of greenhouse gases is done by countries as the atmosphere of the earth intermixes globally. In this particular research on climate change economics, the researcher is identified to determine the empirical relationship between greenhouse gas emissions and the ability to the negative impact of climate change. Unlike the study conducted by Ritchie and Roser, (2017), the researcher in this paper has quantified the climate change equity using data from publicly available data sets and national GDP data. Moreover, the researchers had also tested the correlation between GDP and greenhouse gas emission against the ability to climate change by treating the categories of vulnerability as ordinal data and undertaking the rho test of Spearman using R statistical software, which had made the study valid and reliable.

“The findings of the research on climate change economics indicate that of climate declines highly weight enhancing GDP (ρ = −0.69, n = 175, p = 0; 2030: ρ = −0.65, n = 175, p = 0). The study also indicates that there is a positive correlation of GDP with greenhouse gas emission (ρ = 0.84, n = 175, p = 0)”. Countries like the USA and China hold a position of Win-Win to achieve sustained economic growth through the use of fossil fuel with minimum consequences on climate change. In the similar context a study conducted by Noh and Kim, (2019) explains that a number of countries like African countries and island countries that have low economic growth take initiatives to hold their GHG emissions have a negative influence on climate change. However, the statistical methods used in this literature only resorted to using measures of central tendency and thus, conclusive views on their propositions, through the statistical analysis, could not be attained. The quality of the research articles, used in this research paper, for supporting the claims, was, nevertheless, of very high quality and peer-reviewed, which vouches for the reliability of the data. 

A research conducted by Chen and Hafstead, (2019) on climate change economics, explains that in the year 2015, 195 nations have entered a global agreement for reducing the emission of GHG for limiting global warming. The Paris agreement developed a goal for limiting global warming to 1.5-2o related to pre-industrial levels. In the research, the researcher has used the variant of the “Goulder–Hafstead Energy-Environment Economy (E3) CGE model” for stimulating a case of business-as-usual reference and different cases of carbon tax policy in the US economy. From the findings of the research, it has been identified as the level of total energy-related emission of CO2 between 2014 and 2040 for both the AEO’s no-CPP reference case and the E3 model. The results indicate that the emission of CO2 depicted in the E3 model reference case from the combustion is approximately 236 million tons greater in the year 2025 then under the forecast of AEO. Hence, it indicates that there is a 4.6% difference, which is a significant finding. However, in similar research, Khan et al., (2018), in the context of the GHG emission in the US, it has been explained that it is unlikely that the country can reach the target unless Congress applies the further policy. The study also demonstrates that if the country targets to achieve the Paris agreement goals, a revenue-neutral federal carbon tax on GHG emission through burning fossil fuel can be a viable option, though the study is not backed by statistical analysis in relevance to any model, in comparison to the one used in the initial research stated.

In order to identify the correlation between the emission of carbon dioxide and international trade, the research conducted by Malik and Lan, (2016) has made significant contributions to the literature on the climate change economics. In this research, a well-developed technique termed as structural decomposition analysis (SDA) is used. According to Noh and Kim, (2019) SDA is developed on the basis of the macroeconomic input-output theory which can be utilised for breaking down changes in the emissions of CO2 over time. In this research, the author has used the technique for breaking down the total changes in the emissions of CO2 during the period from 1990 to 2010 based on 6 key determinants that are final demand destination, final demand composition, carbon efficiency, affluence, production recipe, and population. The findings of the research indicate that carbon efficiency results in reduced emission of CO2 for almost all the countries in the world while affluence has a great contribution to the enhancement of the carbon emission. A similar type of result is also identified from the study conducted by Weldemichael and Assefa, (2016) in regards to the climate change economics wherein it has been mentioned that improved efficiency of energy in industrial processes, vehicles and appliances has driven an ongoing decrease in emission. Moreover, the research on climate change economics also indicates the increasing need for reporting on the rest of the world's carbon emission in addition to domestic carbon emission.

Recent research conducted by Frank et al., (2017) explains that GHG emission caused by anthropogenic activities is one of the greatest threats to the ecosystem. The research emphasizes that in order to reduce the level of climate change due to emission like all the industries, the agricultural industry is also necessary to contribute to the achievement of net negative emissions by the end of the century. With the utilisation of the statistical models in the research, the researchers have identified that loss of global food calorie that ranges from 110–285 kcal per capita per day by the year 2050 would depend highly on the applied demand elasticities. Moreover, it is also emphasized that this is likely to translate into enhanced undernourishment of 80–300 million people in 2050. A similar perspective has been also identified from research conducted by Baer et al., (2017) wherein it has been explained that the efficiency of GHG emission would depend on the participation level all over the world. In the context of developing rights regarding greenhouse a policy framework naming Greenhouse Development Rights is developed by Lane, (2016), that can allocate obligations for paint for climate policies depending on the individual quantified metric of responsibility and capacity.

Literature gap
The research articles reviewed in this study are identified to have a deep insight into the concept of greenhouse gas emission and the economics of greenhouse gas emission. A number of research articles have focused on the identification of a correlation between the emission level and the GDP of different developing and developed countries. On the other hand, very few research articles have focused on emissions from different industries and the need for focusing on climate change economics to reduce GHG emission. Therefore, it creates a gap in the literature as the extent to which economic involvement is implemented in different industries across the world for the mitigation of climate change issues is not clear.

From the above study, it has been identified that climate change economics is a popular topic among the researchers for raising awareness regarding the efforts made to reduce the emission of GHG. The emission of CO2 has risen tremendously from the pre-industrial times which signify the need for developing goals to reduce the emission of GHG across countries. The reviewed literature indicates that there is a correlation between the GDP of a country and the initiatives taken to reduce the GHG emission. Moreover, it is also identified from the research on climate change economics that countries with greater economic strength are in a Win-Win situation to meet the goals in greenhouse gas agreements.

Althor, G., Watson, J.E. and Fuller, R.A., 2016. Global mismatch between greenhouse gas emissions and the burden of climate change. Scientific reports, 6, p.20281.

Baer, P., Athanasiou, T., Kartha, S. and Kemp-Benedict, E., 2017. Greenhouse development rights: A proposal for a fair global climate treaty. In Environmental Rights (pp. 75-89). Routledge.

Chen, Y. and Hafstead, M.A., 2019. Using a carbon tax to meet US international climate pledges. Climate Change Economics, 10(01), p.1950002.

Frank, S., Havlík, P., Soussana, J.F., Levesque, A., Valin, H., Wollenberg, E., Kleinwechter, U., Fricko, O., Gusti, M., Herrero, M. and Smith, P., 2017. Reducing greenhouse gas emissions in agriculture without compromising food security?. Environmental Research Letters, 12(10), p.105004.

Khan, I., Jack, M.W. and Stephenson, J., 2018. Analysis of greenhouse gas emissions in electricity systems using time-varying carbon intensity. Journal of Cleaner Production, 184, pp.1091-1101.

Lane, J.E., 2016. The COP21 agreement: Greenhouse Gases and the GDP. International Journal of Research, 1.

Malik, A. and Lan, J., 2016. The role of outsourcing in driving global carbon emissions. Economic Systems Research, 28(2), pp.168-182.

Noh, J. and Kim, J.S., 2019. Cooperative green supply chain management with greenhouse gas emissions and fuzzy demand. Journal of cleaner production, 208, pp.1421-1435.

Ritchie, H. and Roser, M., 2017. CO? and Greenhouse Gas Emissions. Our world in data.

Weldemichael, Y. and Assefa, G., 2016. Assessing the energy production and GHG (greenhouse gas) emissions mitigation potential of biomass resources for Alberta. Climate change economics Journal of Cleaner Production, 112, pp.4257-4264.


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