Sometimes, in discussing climate change, people refer to CO2 as a form of pollution. This makes it sound dirty, like smog or soot. This is a bit counterintuitive, since CO2 is odorless, colorless, and is essential for plants to live and produce food. It also suggests that emitting CO2 is just plain wrong, since pollution should be avoided, right?
A more helpful way to think about CO2 emissions is as an activity that imposes costs on others, without compensating them. This is what economists call an externality (or external cost). Externalities are bad, but they are not bad in the sense that we should ban the activity outright: rather, while some of the activity could be desirable, people tend to engage in “too much” of activities with external costs. This is what generates the inefficiency: a missed opportunity to make some people better off, without making anyone worse off.
So if we can respond appropriately to CO2 emissions, we can make some people better off, and no one worse off. That sounds like a no-brainer, right? This video explains how.