Climate Change Economics and Policy
QUESTION
1.Explain the concept of an externality. How can putting a price on pollution correct for an externality? (Respond in one short paragraph less than 100 words)
2.Why is the mitigation of GHG’s characterised as a public good and what is the main implication of this? (Respond in one short paragraph less than 100 words)
3.Role play, where you are the principal advisor of the Minister for the Environment. The Minister has an upcoming media interview on a new policy to reduce greenhouse gas emissions. The Minister requires a precise and concise answer for the following question.
A.What are the reasons for the government to have a policy to reduce emissions? (Use dot points to present the information to the Minister, no more than 100 words in total)
SAMPLE SOLUTION
Externalities are viewed as significant sources of market failure. According to (Managi, 2015), an externality may be defined as a factor whose impact (either positive or negative) is not reflected in the market price of goods but affects not only the cost associated with a transaction a business but also other parties. Failing to include such factors in decision making is often regarded as the onset of market failure. Pollution from factories is one of the externalities. However, putting a price on pollution can correct for this externality. For instance, according to US Energy Information Administration (EIA, 2016), emissions of key air pollutants have dropped by over 800 million metric tons from the year 2007 as result of the introduction of the carbon tax.
Mitigating GHG’s is viewed as a public good since a reduction in the production of greenhouse gas in a particular region also results in the improvement of regional environment and directly contribute to a better health and well-being of the general public at large. The implication of this is that it is the duty of everybody within their capacity to establish and implement the strategies for moderating the impacts of GHG’s. This is because, it is a global phenomenon and attempts to mitigate it not only requires international cooperation but also individual participation (Intergovernmental Panel on Climate Change, 2015)
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