How can economics contribute to designing a “solution” for the emerging climate crisis? This essay attempts to answer that question by investigating the roots of economic thinking and analyzing the coordination issues that are at the heart of the climate problem. While economics has been a protagonist in climate change debates by providing economic instruments such as tradeable emission permits, it has also been an antagonist by calling into doubt the need for mitigation, the benefits of which were held not to outweigh the costs. This essay argues that climate change is primarily a social equity issue and that economics is a poor science for analyzing such issues. Discussion models in economics and climate change science are fundamentally different, moreover, which means the two disciplines are prone to mutual misunderstanding. Nonetheless, to resolve the climate problem, climate science could well benefit from economic thinking, and especially from theoretical ideas from institutional economics concerning the design of effective policy instruments. This essay proposes several alternative instruments that might be used in climate policies, such as a “carbon-added tax”, nudging and extensive compensation schemes.
This essay was written as part of the Matrix project, a multi- and transdisciplinary project under the Dutch Bsik programme ‘Climate Change and Spatial Planning’ that ran between 2009 and 2010. The Matrix aimed to develop concrete action perspectives for the climate crisis in a partnership between climate science, economics, urban planning and social sciences that were each represented by a ‘steward’. See: www.klimaatmatrix.nl