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How Economists Tackle Climate Change
Climate change is a stubborn problem. But economists have already devised potential solutions.
Rising sea levels, extreme weather events, droughts. The effects of climate change is likely to be catastrophic unless we take action immediately.
Carbon reduction policies are difficult to implement. Economists can help us understand why.
Why we fail to act is an example of the ‘tragedy of the commons’ - when there is a conflict of interest between individuals and the common good.
What would happen if CO2 emissions were reduced globally? Would everybody benefit?
1. Individual countries have to implement the right policies
2. Switching to cleaner energy is costly
3. People are profit-driven; it is unpalatable for most to increase their spending when cheaper options exist
4. Each country represents a minority of the total global population. This means national efforts barely make an impact on the problem. There must be collaboration for this to work
This means there is an incentive to free ride. Countries can continue to pollute whilst waiting for other countries to introduce green policies.
The tragedy of the commons is therefore the result of widespread free riding.
This is why voluntary measures to tackle climate change have failed.
The 1997 Kyoto Protocol is a good example.
1. A large number of countries signed up to reduce emissions
2. Many countries decided to free ride: one of them was the United States, one of the most developed countries in the world
It’s true; this is a Gordian knot of a problem. But economists have come up with some solutions.
1. Global carbon taxes
This is where polluters are charged a fixed price per ton of emitted CO2, wherever they are in the world
2. Tradable emission permits
This requires a global ceiling for greenhouse gases to be set. The ceiling needs to be reduced each year. These permits are tradable and a ‘market to pollute’ is created. Therefore, those who do pollute are paying to do so. These revenues can also be put to more sustainable use.
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