Economic growth, other things equal, tends to increase the human impact on the environment. As we saw in this chapter’s opening story, China’s spectacular economic growth has also brought a spectacular increase in air pollution in that nation’s cities.

It’s important to realize, however, that other things aren’t necessarily equal: countries can and do take action to protect their environments. In fact, air and water quality in today’s advanced countries is generally much better than it was a few decades ago. London’s famous “fog”—actually a form of air pollution, which killed 4,000 people during a two-week episode in 1952—is gone, thanks to regulations that virtually eliminated the use of coal heat. As noted in the chapter’s opening story, the equally famous smog of Los Angeles is also largely gone, again thanks to pollution regulations.

Despite these past environmental success stories, there is widespread concern today about the environmental impacts of continuing economic growth, reflecting a change in the scale of the problem. Environmental success stories have mainly involved dealing with local impacts of economic growth, such as the effect of widespread car ownership on air quality in the Los Angeles basin. Today, however, we are faced with global environmental issues—the adverse impacts on the environment of the Earth as a whole by worldwide economic growth. The biggest of these issues involves the impact of fossil-fuel consumption on the world’s climate.

Burning coal and oil releases carbon dioxide into the atmosphere. There is broad scientific consensus that rising levels of carbon dioxide and other gases are causing a greenhouse effect on the Earth, trapping more of the sun’s energy and raising the planet’s overall temperature. And rising temperatures may impose high human and economic costs: rising sea levels may flood coastal areas; changing climate may disrupt agriculture, especially in poor countries; and so on.

The problem of climate change is clearly linked to economic growth. Figure 9-12 shows carbon dioxide emissions from the United States, Europe, and China since 1980. Historically, the wealthy nations have been responsible for the bulk of these emissions because they have consumed far more energy per person than poorer countries. As China and other emerging economies have grown, however, they have begun to consume much more energy and emit much more carbon dioxide.

Is it possible to continue long-run economic growth while curbing the emissions of greenhouse gases? The answer, according to most economists who have studied the issue, is yes. It should be possible to reduce greenhouse gas emissions in a wide variety of ways, ranging from the use of non-fossil-fuel energy sources such as wind, solar, and nuclear power; to preventive measures such as carbon sequestration (capturing the carbon dioxide from power plants and storing it); to simpler things like designing buildings so that they’re easier to keep warm in winter and cool in summer. Such measures would impose costs on the economy, but the best available estimates suggest that even a large reduction in greenhouse gas emissions over the next few decades would only modestly dent the long-term rise in real GDP per capita.

The problem is how to make all of this happen. Unlike resource scarcity, environmental problems don’t automatically provide incentives for changed behavior. Pollution is an example of a negative externality, a cost that individuals or firms impose on others without having to offer compensation. In the absence of government intervention, individuals and firms have no incentive to reduce negative externalities, which is why it took regulation to reduce air pollution in America’s cities. And as Nicholas Stern, the author of an influential report on climate change, put it, greenhouse gas emissions are “the mother of all externalities.”

So there is a broad consensus among economists—although there are some dissenters—that government action is needed to deal with climate change. There is also broad consensus that this action should take the form of market-based incentives, either in the form of a carbon tax—a tax per unit of carbon emitted—or a cap and trade system in which the total amount of emissions is capped, and producers must buy licenses to emit greenhouse gases. There is, however, considerable dispute about how much action is appropriate, reflecting both uncertainty about the costs and benefits and scientific uncertainty about the pace and extent of climate change.

There are also several aspects of the climate change problem that make it much more difficult to deal with than, say, smog in Beijing. One is the problem of taking the long view. The impact of greenhouse gas emissions on the climate is very gradual: carbon dioxide put into the atmosphere today won’t have its full effect on the climate for several generations. As a result, there is the political problem of persuading voters to accept pain today in return for gains that will benefit their children, grandchildren, or even great-grandchildren.

There is also a difficult problem of international burden sharing. As Figure 9-12 shows, today’s rich economies have historically been responsible for most greenhouse gas emissions, but newly emerging economies like China are responsible for most of the recent growth. Inevitably, rich countries are reluctant to pay the price of reducing emissions only to have their efforts frustrated by rapidly growing emissions from new players. On the other hand, countries like China, which are still relatively poor, consider it unfair that they should be expected to bear the burden of protecting an environment threatened by the past actions of rich nations.

The general moral of this story is that it is possible to reconcile long-run economic growth with environmental protection. The main question is one of getting political consensus around the necessary policies.