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This Essay criticizes Professor Richard Epstein’s approach to climate change regulation, which he characterizes as one involving taking modest steps at first, observing the results of these steps, and then using the lessons learned to inform the next steps. Epstein’s approach depends critically on a particular class of damage function determining how greenhouse gas emissions cause harm—specifically, damage functions that lack discontinuities. And it also depends on the ability to observe in real time how the function occurs. Neither of these conditions are met with respect to climate change. The Essay also shows that Epstein’s approach is further undermined by the structure of energy markets, in which investments are large and lumpy as opposed to small and continuous. For example, Epstein’s “small steps” approach might lead to significant current investments in natural gas facilities, like natural gas pipelines, instead of a bolder move to renewables. These lumpy investments cannot be easily undone when it then turns out that our approach to climate change regulation was too cautious, both for economic and public choice reasons.



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