Reports this weekend suggest a split in the incoming Administration over the needs of the climate and the needs of the economy with Lawrence Summers sounding alarms about the effect of unilateral climate action by the United States on its international competitiveness. That is worrisome. In the long run, Economics 101 supports Summers’ position. But in the short run, climate policy catalyzes efficiency gains which can offset and even provide a net advantage that offsets carbon cap or tax costs. But more importantly, it is a mistake to view international climate regulation on a market model. Most of the rest of the World is waiting for the U.S. to establish is climate bona fides. With that in place, it will hard for them to avoid acting as well for two reasons: organized inaction is very unlikely politically. Haphazard inaction is unlikely to be uniform. But as some countries join climate control efforts the international pressure on those that don’t will rise.
Re the comment below: the contrast is not between economics and climate but rather short term economics and long term economics. In the short run, there are economic gains from winding out of a carbon economy. But in the long run, the added cost of clean energy will have adverse (economic) effects.