ECONOMIC REPORT OF THE PRESIDENT

C H A P T E R 7
ADDRESSING CLIMATE CHANGE
Introduction
Addressing climate change and transitioning to a clean energy system
is one of the greatest and most urgent challenges of our time. If left
unchecked, greenhouse gas (GHG) emissions threaten future national and
global welfare and economic output. The impacts of climate change are real
and being felt today. Fifteen of the sixteen warmest years on record globally
have occurred between 2000 and 2015, and 2015 was the warmest year on
record. Although it is difficult to link specific weather events to climate
change, some extreme weather events have become more frequent and
intense, consistent with climate model predictions. The number of weather
events that have led to damages in excess of $1 billion has been increasing
in recent years due to both climate change and economic development in
vulnerable areas.
Without proactive steps to reduce greenhouse gas emissions and
slow the climate warming already being observed, future generations will
be left with—at a minimum—the costly burden of facing the impacts of a
changed climate on our planet, and potentially with catastrophic climate
impacts. From an economic perspective, the causes of global climate change
involve a classic negative environmental externality. The prices of goods and
services in our economy do not reflect their full costs because they do not
incorporate the costs of the impacts of greenhouse gas emissions associated
with their production and consumption. Policies that internalize these costs
will improve social welfare while reducing the odds of catastrophic climate
events. In addition to the costs incurred to date, delaying policy action
can increase both future climate change damages and the cost of future
mitigation.
Addressing the environmental externalities from climate change
involves changing the long-run trajectory of our economy toward a more
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