The Economics of Climate Change
The Carbon Budget
How scientists calculate how much more carbon dioxide the world can emit while keeping warming below set limits, and why the budget is running out.
Scientists have found that global warming is roughly proportional to the total, or cumulative, amount of carbon dioxide emitted over time. This allows them to estimate a carbon budget: how much more carbon dioxide the world can emit while keeping warming below a given limit.
How large is the budget?
The Intergovernmental Panel on Climate Change estimated in its 2021 assessment that, from the start of 2020, the remaining budget for a 50 percent chance of limiting warming to 1.5 degrees Celsius was around 500 billion tonnes of carbon dioxide. With global emissions around 40 billion tonnes a year, that budget is being used up rapidly. More recent scientific updates suggest the remaining budget for 1.5 degrees could be exhausted within just a few years at current emission rates.
The budget for 2 degrees is larger but also limited.
Economic implications
The carbon budget turns climate policy into a problem of allocating a scarce resource. Every tonne emitted now reduces what remains for the future.
Fairness in sharing the budget
How should the remaining budget be shared among countries? Different principles lead to very different answers:
- Historical responsibility: countries that emitted most in the past, mainly rich countries, have already used much of the budget.
- Equal per person: every person has an equal right to the atmosphere, favouring populous countries with low emissions per person, such as India.
- Current emissions: continuing current shares would favour today’s large emitters.
- Capability: richer countries should cut faster because they can afford to.
India and other developing countries emphasise historical responsibility and equal per-person rights, noting that rich countries industrialised using most of the budget.
Imagine a pie that must feed everyone for a long time. Some people have already eaten large slices. If the remaining pie is divided equally among everyone from now on, those who ate a lot earlier have still had more in total. Debates over the carbon budget resemble arguments over how to share the remaining pie fairly.
Because warming depends on cumulative emissions, every year of high emissions uses up budget that cannot be recovered. Delays make future cuts steeper and more costly.
- Warming is roughly proportional to cumulative carbon dioxide emissions.
- The remaining budget for 1.5 degrees is small and being used up rapidly.
- The budget turns climate policy into allocating a scarce resource.
- Principles like historical responsibility and equal per-person shares shape fairness debates.
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