Summary: Climate Change and Econom ic Policy Greenhouse gas emissions (GHG) are accountable for increased changes in climatic conditions around the world. This calls for economic policy interventions to curb the situation. The following are some of the greenhouse gas emissions; methane, ozone and carbon II oxide (John, 2012, p.2). These emissions result from unethical human activities such as, deforestation and unconditional combustion of fossil fuels. Consequently, there has been an increase in the sea level, loss of bio-diversity and an increased damage to the ecosystem (John, 2012, pp.2). The Australian government has introduced policies to reduce the social costs of pollution by ensuring that the Marginal Social Benefit (MSB) is equal to Marginal social Cost (MSC). These policies establish regulations that govern human activities, creation of property rights and increasing taxation. However, these efforts have been compromised by the changing nature of human activities that cause pollution. (John, 2012, pp.36). Ethics and Economic Modeling A Sustained Economic growth is attainable when people’s economic activities are considerate of the social costs to the present and future generations (Gillard, Swan & Combet, 2011, p.3).Contrary to this ethical approach, Environmental pollution has become an externality (benefit or cost). An external benefit or external cost results when an individual’s production activities result in an effect that is transferred to another person. In addition, the effect is not conveyed through prices in the market place. These activities are harmful to other people and yet their effects are not considered when pricing products (Freebairn, 2008, pp.13-28). Pollution is one such externality that occurs when individuals seek to produce more at the expense of the environment, resulting in climatic change. However, these effects are not considered as allowances when pricing goods in the market. Producers set their market price to match their own marginal Private Costs in order to cater for all the expenses of production. In addition, increased production is a consequent of increased demand in the market for commodities such as vehicles and fuel (Freebairn, 2012, pp.1-41). Therefore, the market too ignores the costs of pollution. Ethically, the following economic models in production must guide all individuals; Marginal Private Benefits (MPB) must be equal to Marginal Social Costs (MSC). Secondly, the marginal social costs (MSC) must be the sum of Marginal Private Costs (MPC) and Marginal economic costs (MEC) (Gillard, Swan & Combet, 2011, p.34). Controlling pollution requires that a new model be adopted which adds some costs on production. The Marginal Abatement Cost (MAB) model must be adopted in addition to the models mentioned in the previous section (Gillard, Swan & Combet, 2011, p.36). These involves costs that are to be incurred in reducing the effects of pollution and include; the adoption of expensive but less polluting methods of production and the acceptance of alternative products which are affordable and not as much polluting. If governments have to control the unethical behaviors in the economic sphere, they must advance policies that are punitive in nature. There are several such policy measures