DMPQ- Highlight the economics of Climate Change.

Abatement of GHGs, particularly CO2 , implies curtailment of energy consumption. Energy is a vital factor of production, and its replacement and/or reduction will entail a shift away from current production methods. If current systems employ efficient production techniques, a change in factor proportions will increase the cost of production, and have an adverse impact on the national income. This section briefly summarizes the crucial factors determining the cost of abatement and outlines the present understanding of the cost to the economy of the GHG abatement policies.

A wide variety of models have been developed in both economic and engineering disciplines to assess the costs of GHG abatement policies. The differences in model estimates are wide and a number of factors contribute to these differences. The following sub-sections discuss the two main traditions of modelling – namely, top-down and bottom-up, and their cost estimations; and the potential of the so-called whereand when flexibilities in bringing down the abatement costs.

Empirical evidence suggests that internal diseconomies of scale are likely to lead to increasing marginal costs of response options. The literature on response options focuses mainly on individual technologies and their cost-effectiveness. Emphasis on engineering aspects and the limited availability of reliable and accepted data on the costs and benefits of response options has resulted in the assessment of options in isolation rather than on the basis of mutual comparison. However, a generic assessment would require a framework that allows for a simultaneous evaluation of technologies or options.

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