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Free Market Strategies to Confront Global Warming


The debate is over

Challenges to the Economic Approach:
-Free Markets
-Pricing the Planet

The Case for Market Intervention

Free Market Strategies

Carbon Taxes

Emissions trading: Cap and Trade

Economic Adaptation

Further Information

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Challenges to the Economic Approach:

Free Markets
    While it is clear to many that the challenge and danger of global warming is beyond just social, political, ethical or spiritual concerns, there has been great focus in the media and politics on the economic costs.  As with any proposed scheme today, first we must ask; “Is it a good idea?” and soon after; “How will we pay for it?”  Concern over the cost of addressing global warming has weighed heavily in the debate.  This is greatly complicated by the fact that no one knows the actual costs of addressing global warming or what will happen if we do not.  The third IPCC report estimates a cost of plus or minus 1% of world GDP  but published estimates run all over the place.  “It will hurt the economy” is still a prevalent argument and was one reason George W. Bush gave for not signing the Kyoto Protocol in 2001.  The very suggestion that GDP must be sacrificed is contentious to many and contradicts what many Americans have been taught is essential for prosperity.  Mitigating carbon will therefore hurt economic prosperity and burden the average individual in getting what they need.  
"Uncertainty is an argument for a more, not less, demanding goal, because of the size of the adverse climate-change impacts in the worst-case scenarios."
-STERN REVIEW: The Economics of Climate Change

    The strongest rebuttal of the argument that mitigation schemes will hurt the economy is in the form of the Stern report.  This report was prepared for the British government by the economist Sir Nicholas Stern and argues that “The benefits of strong, early action on climate change outweigh the costs. ”  He claims that given the predicted effects from the IPCC, not doing anything will result in much greater damage than the cost of addressing the problem now.  Therefore the cost of addressing climate change is really an investment in the future; a cost paid now that will benefit future generations.

Pricing the Planet
    Another argument against using market tools is that in order to use these tools, we must put a price on the environment.  Environmentalists have claimed that taxes and trading schemes equate offering “licenses to pollute” and are therefore unacceptable.   In its place they often prefer legislative measures that will set strict limits and more strongly reflect the moral imperative of reducing emissions.  They also argue that market strategies can have unequal effects on some people and areas over others.  This concern has weakened somewhat in the last few years as tax and trading schemes have gained acceptance.  Economists often offer the rebuttal that legislation will often make polluters take unnecessarily expensive measures and that market schemes allow for cost minimization in reducing emissions.  Legislation can also be cumbersome and won’t adapt to changing conditions fast enough.  Nonetheless, pricing the environment remains a concern, though it varies given the context.

Last updated:  2/2/2006


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