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In this paper we summarize various estimates of the costs of mitigation of adverse impact of the climate change via cap-and-trade. We find that the differences in the estimated impacts on gross domestic product (GDP), consumption, employment, and gasoline, electricity and natural gas prices are mainly driven by the following factors: the timeframe of new technology development, growth potential of existing clean sources of energy, availability of offsets (domestic, and international), and banking of allowances.
However, our main finding is that even for more optimistic estimates, the mitigation costs are likely to amount to as much as 1 percent drop in consumption starting today and going into the future, which, as we argue, constitutes an enormous impact on social welfare. Thus, it is important to carefully assess the costs of global warming to see whether they justify such drastic measures.
