Incorporating Global Warming Externalities through Environmental Least Cost Planning: A Case Study of Western Europe

With growing acceptance of the need for preventative action, the international debate on greenhouse policies has shifted from scientific issues to economic questions. Broadly speaking, proposals for incorporating global warming externalities move along the same lines as the debate over other environmental externalities—valuation-based price signals (monetized surcharges or carbon taxes) versus quantity constraints (emission caps or reduction targets). However, the global warming issue has produced specific forms of these alternative approaches. Most important for the current discussion are the so-called insurance buying approach (Krause et al. 1989) and the “no (economic) regrets” approach.