Earth in hands representing climate change economics

Decoding Climate Economics: A User-Friendly Guide to Global Change

Nico Varela in Climate & Environment August 2025 • 4 min read.

"From greenhouse gases to adaptation strategies, understand the economic forces shaping our planet's future and how they impact your life."

The intersection of economics and climate change is more critical than ever. Economic activities are both a cause and casualty of climate change, and governments, businesses, and individuals are increasingly grappling with policies to mitigate its effects and adapt to the changes already underway. This article explores the economic literature on climate change, tracing the evolution of ideas from early classic papers to today's contributions.

Climate change presents unique challenges due to the long-lived nature of greenhouse gases and their global impact. Emissions from anywhere in the world contribute to the problem, and mitigation efforts benefit everyone, regardless of where they occur. This creates a classic open-access resource problem, requiring global cooperation and coordination.

We will break down the key areas of climate economics: trends in greenhouse gas emissions, mitigation strategies, and adaptation measures. Understanding these areas is essential for anyone looking to grasp the full scope of the climate challenge and the economic considerations that must inform our response.

What's Driving Climate Change? Understanding Emission Trends

Earth in hands representing climate change economics

To effectively tackle climate change, we must understand the trends driving greenhouse gas emissions. This not only satisfies scientific curiosity but also provides a baseline against which policy scenarios can be benchmarked. The focus is primarily on carbon dioxide emissions from fossil fuel combustion, the most significant source of greenhouse gases. However, deforestation, land use changes, methane emissions, and sulfate aerosols also play important roles.

The scientific exploration of the greenhouse effect dates back to the 19th century with pioneers like Fourier and Tyndall, who identified carbon dioxide and water vapor as key greenhouse gases. Later, Arrhenius quantified the effect and raised concerns about anthropogenic carbon emissions influencing the global climate. However, he also believed climate change would be beneficial to society. In 1938, Callendar compared the expected warming effect of accumulated carbon dioxide emissions since the 20th century's start to the actual warming rate, marking the first analysis of human-induced warming.

1827: Fourier identifies the greenhouse effect.
1861: Tyndall discovers carbon dioxide and water vapor are the main greenhouse gases.
1896: Arrhenius quantifies the greenhouse effect and raises concerns about anthropogenic carbon emissions.
1938: Callendar compares expected warming effect to actual warming rate.

Despite these early warnings, predicting future CO2 concentrations accurately proved challenging. Early models often ignored economic growth or critical feedbacks, leading to underestimates. For example, Plass in 1956 estimated a 30% rise in carbon dioxide concentrations over the 20th century and a temperature increase of 1.1°C, warning that continued exploitation of fossil fuels would lead to centuries of warming. Regular measurements of atmospheric CO2 concentrations began in 1957 on Mauna Loa, Hawaii, quickly confirming a consistent year-by-year increase.

The Road Ahead: Balancing Costs and Benefits

Addressing climate change effectively requires a careful balance between the costs of mitigation and the benefits of reduced future climate change impacts. Economic analysis plays a crucial role in informing these decisions, helping policymakers and individuals make informed choices about how to respond to this pressing global challenge.

About this Article -

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This article is based on research published under:

DOI-LINK: 10.1515/roe-2014-0305, Alternate LINK

Title: The Economics Of Global Climate Change: A Historical Literature Review

Subject: General Economics, Econometrics and Finance

Journal: Review of Economics

Publisher: Walter de Gruyter GmbH

Authors: Leo Dobes, Frank Jotzo, David I. Stern

Published: 2014-12-01

Everything You Need To Know

What are the key greenhouse gases and who first identified them?

The key greenhouse gases, as identified by pioneers, are carbon dioxide and water vapor. John Tyndall discovered in 1861 that carbon dioxide and water vapor are the main greenhouse gases. Understanding the role of these gases is crucial because they trap heat in the Earth's atmosphere, contributing to the greenhouse effect. Their identification was a critical early step in understanding the mechanisms of climate change. Later, scientists like Arrhenius quantified the impact of these emissions, and Callendar's work provided early insights into human-induced warming.

Why is addressing climate change a global challenge, and what economic concepts are involved?

Climate change is a global challenge because greenhouse gas emissions from anywhere in the world contribute to the problem, and mitigation efforts benefit everyone, regardless of where they occur. This creates a classic open-access resource problem, requiring global cooperation and coordination. Economic concepts such as the balance between the costs of mitigation and the benefits of reduced future climate change impacts are central to this challenge. This requires understanding emission trends, mitigation strategies, and adaptation measures to make informed choices.

How has the understanding of climate change evolved over time, as described in the provided text?

The understanding of climate change has evolved significantly since the 19th century. Initially, scientists like Fourier and Tyndall identified the greenhouse effect and key greenhouse gases. Arrhenius quantified the effect of anthropogenic carbon emissions. Later, Callendar compared the expected warming effect of accumulated carbon dioxide emissions to the actual warming rate, highlighting human-induced warming. Despite early warnings, predicting future CO2 concentrations and impacts proved challenging due to limitations in early models. Regular measurements of atmospheric CO2 concentrations began in 1957, confirming a consistent year-by-year increase.

What are the main areas of climate economics that are essential to understand the climate challenge?

The main areas of climate economics essential for understanding the climate challenge are: trends in greenhouse gas emissions, mitigation strategies, and adaptation measures. Understanding these areas is essential for anyone looking to grasp the full scope of the climate challenge. Trends in greenhouse gas emissions, particularly carbon dioxide from fossil fuel combustion, must be understood to benchmark policy scenarios. Mitigation strategies involve reducing emissions, while adaptation measures involve adjusting to the impacts of climate change. These economic considerations must inform our response to this pressing global challenge.

What are the primary drivers of climate change and how are they connected to economic activities?

The primary driver of climate change is greenhouse gas emissions, with a focus on carbon dioxide from fossil fuel combustion. However, deforestation, land use changes, methane emissions, and sulfate aerosols also play important roles. Economic activities are both a cause and a casualty of climate change. Economic activities, such as the burning of fossil fuels for energy, directly cause greenhouse gas emissions. At the same time, climate change impacts, like extreme weather events, can disrupt economic activities and damage infrastructure, highlighting the need for understanding emission trends, mitigation strategies, and adaptation measures.