In the absence of abatement measures, emissions of greenhouse gases are likely to grow over the next century largely from the burning of fossil fuels. As a result, atmospheric concentrations of carbon dioxide and other greenhouse gasses will continue to increase. The most recent IPCC (1996a) report links such increases to climate change. This poses a difficult choice for policy-makers. How much should society sacrifice to slow and possibly reverse the steady increase in greenhouse gas emissions?

Although not without controversy, there is a growing consensus among economists that near-term reductions in greenhouse gases could result in substantial costs. For example, many models suggest that the annual costs of stabilizing emissions could exceed 1–2 percent of GDP in OECD countries (IPCC, 1996a). Immediate reductions in emissions could add to costs if economies have little time to adjust to the change in policy. At the same time, global changes in climate could have undesirable impacts on both managed lands and unmanaged ecosystems. Examples of managed lands include agriculture, timber and water resources. Effects on unmanaged ecosystems could include effects on human health and biodiversity. As a result, choices made in the next few decades to either reduce emissions or continue the current pace of emissions growth have large and widespread ramifications.

The rational approach to greenhouse gas policy is to weigh the benefits of different control policies against their costs.