The optimal solution to the greenhouse gas problem minimizes the sum of the climate damage and the cost of mitigation over the long run, but the current UN initiative is not even close to achieving this. There are three key insights that emerge. First, mitigation cost should be balanced against climate damage; second, as marginal damage increases with higher concentrations of greenhouse gases, so marginal cost should also rise; and third, the marginal cost of mitigation should be equated across all emitters.

However, there are serious political difficulties, as the objective for each country is not necessarily what is best for the world overall. Thus, without international cooperation, individual countries have very little incentive to reduce emissions. Damages and costs are very difficult to estimate, and lowest cost strategies call for long-term commitments, which are alien to most politicians and voters. The long delay between action and damage also raises questions about discounting.

Developed and emerging economies are each responsible for about 45 percent of emissions and must do most of the mitigation. But there is no silver bullet, and a portfolio of technologies is needed. Energy conservation, a move from coal to gas, renewable energy sources, bioenergy, and nuclear power can all make contributions. Carbon capture and storage is also an important part of the solution, but the feasibility of the technology on a large scale must still be assessed. Finally, using forests for sequestration is cost effective, but using woody biomass as part of a BECCS solution is expensive.

The most important insight from economics is that the cost of mitigation rises rapidly the more stringent the target. The cost of meeting a target of a maximum 5°C rise is about $10 trillion. Reducing this to 4° adds a further $10 trillion, but going down to 3°C would cost $40 trillion, and to 2°, $100 trillion. The world is not yet ready for a largescale cost-effective mitigation program, and the more aggressive targets do not allow for such delays.

In practice, a large fraction of the potential damage from climate change can be avoided by adaptation. Indeed, this is hard to prevent because all sections of society have an incentive to do so.