In any discussion about climate change, you will almost certainly hear the claim that reducing our greenhouse gas emissions will harm the economy. Even proponents of climate policy seem to take this as a given when they argue that environmental protection justifies the economic costs that could result.
The view seems to make intuitive sense: greenhouse gas emissions result from energy use, efforts to reduce emissions will make energy more expensive, higher energy prices will hinder economic activity and thereby harm the overall economy. For all its intuitive certainty, however, the view that increasing energy prices must necessarily harm the economy is patently false. Basic economic principles instead suggest that including a price on pollution would lead to an overall economic improvement. In this post, I’ll explain why. (more…)