Past experience has shown that policy solutions to address externalities are most effective when the problem is local. So what are the chances of an effective inter-governmental solution to global warming?
A recent report by the International Energy Agency suggests that with current climate policies, global mean temperature is likely to increase by between 3. This is far outside the temperature range experienced in the history of humanity. In fact, during the last decade worldwide annual emissions growth was higher than at any time in the past, as Figure 1 illustrates.
As a consequence, in May ofthe atmospheric concentration of carbon dioxide eclipsed parts per million — its highest level in at least several hundred thousand years.
Calculations by climate modellers suggest that meeting this target will be extremely challenging. Comparing this to Figure 1 helps to illustrate the scope of the climate mitigation challenge.
To maintain within the ppm limit, emissions would need to fall to zero or even to negative values after that point. So far, the world has not effectively responded to this challenge. Because of the global nature of climate change, most countries have been reluctant to undertake significant effort to reduce emissions without a guarantee that others will do the same, perceiving that the majority of benefits from such an effort will accrue to other countries.
There is, however, some recent optimism around an old approach that turns the historic approach to climate change negotiations on its head: Under such an approach, some countries would unilaterally implement modest but meaningful climate change mitigation policies.
These policy statements would include escalators — promises to increase the ambition of the policy under the condition that other countries also undertake meaningful policies to reduce emissions. If escalation clauses were built into domestic climate policies, the result could be a gradual tightening of global emissions constraints.
Such a bottom-up approach may help to ease the deadlock in international climate negotiations. Annual global emissions of carbon dioxide. International Energy Agency Indeed, this bottom-up type of approach already complements the formal negotiations over emission reduction targets and timelines that occur through the United Nations.
The European Union, for example, has implemented an emission trading system as well as renewable energy targets, and conditions the stringency of its domestic emission reduction targets on action by other countries. The United States, Canada, and other countries have also taken modest steps to reduce emissions.
As a result of recently-implemented policies, it appears that the US is on pace for meeting its emission reduction target. However, Canada is increasingly falling behind other countries in the ambition and scope of its climate policies, and appears almost certain to miss by a significant margin its emission reduction target.
Limited action on climate change in Canada helps to provide a foil for other countries seeking to delay or weaken domestic emission reduction efforts. Canada has repeatedly affirmed its commitment to avoiding dangerous climate change during its participation at conferences to the United Nations Framework Convention on Climate Change.
However Canadian domestic action has so far fallen significantly short of international promises, such that Canada has failed to achieve its prior commitments, including at the World Conference on the Changing Climate and the Kyoto Protocol.
Its recent commitment, made at the Copenhagen United Nations conference inis likewise incompatible with current policies and emission trends.
Although Canadian emissions have fallen slightly since — due especially to phase-out of coal fired power plants in Ontario — the long-term trajectory of emissions in Canada is upwards. Emissions have increased by about 15 percent sinceand a recent government forecast suggests that emissions are likely to increase through at least under current climate policies.
At the federal level, climate change policy essentially consists of four regulations, governing the greenhouse gas intensity of the new light duty and heavy duty vehicle fleets, the greenhouse gas intensity of new coal-fired power plants, and the renewable fuel content in gasoline and diesel. In each case, these regulations are more costly than necessary, and the total amount of greenhouse gases that will be reduced by the policies is small, especially in the near- to mid-term.
Most importantly, the limited set of policies covers only a small amount of emissions in the economy, allowing emissions in the remainder of the economy to increase unabated see Figure 2. Greenhouse gas emissions by sector in Canada.
Sectors currently regulated at the federal level are below the dark line. Only a portion of total emissions in regulated sectors are subject to federal emission regulations. This paper suggests an alternative approach to domestic greenhouse gas policy is required.
I begin by outlining a set of key objectives that should confront any effort to develop a domestic greenhouse gas policy. I then contrast these objectives with current Canadian climate change policies, and show how a new approach is required.
Finally, I articulate a policy that can meet federal climate change objectives. My aim is to articulate the possibility for a carbon tax to efficiently and effectively contribute to significantly reducing greenhouse gas emissions in Canada.
I explain the particular strengths associated with carbon taxes relative to the existing regulatory approach for reducing emissions, and provide evidence to show that implementation of such a policy could reduce emissions at very low cost to the economy.
Indeed, relative to the current approach for reducing emissions, a carbon tax would be associated with significant cost savings. Clearly implementing a meaningful carbon tax is a political challenge, but the potential rewards to such an approach are large.
For public policy makers, this means designing a policy that minimizes costs imposed on current generations since benefits accrue mostly to future generations, that recognizes the global context for reducing greenhouse gas emissions, and that recognizes that an approach focused on particular technologies will be insufficient.
In Canada, policy makers face the additional challenge associated with navigating issues associated with division of powers and distribution of costs and benefits across the federation.
Given these constraints, an effective policy should aim to satisfy a number of goals. Meaningful mitigation of climate change can be achieved only through the combined efforts of all major emitters.The government can intervene in a market using regulations and laws.
For example, the Health and Safety at Work Act covers all public and private sector businesses. Local Councils can take action against noisy, unruly neighbours and can pass by-laws preventing the public consumption of alcohol. Finance & Development. These economists recommended government intervention to correct for the effects of externalities.
given the cost to some individuals and firms and the difficulties of global enforcement of such policies (Tirole, ). Externalities pose fundamental economic policy problems when individuals, households, and firms. The Current Population Survey reports that nearly 83 percent of the under-age-sixty-five population in the United States had health insurance.
More than three-quarters of these people had coverage through an employer, fewer than 10 percent purchased coverage on their own, and the remainder had coverage through a government program. It then discusses current federal policies affecting these externalities, including fuel taxes, fuel-economy and emissions standards, and alternative fuel policies, summarizing, insofar as possible, the welfare effects of those policies.
Negative Externalities and Government Intervention. Levels: AS, A Level; Exam boards: AQA, Edexcel, OCR, IB; Print page. The government can intervene in a market using regulations and laws. For example, the Health and Safety at Work Act covers all public and private sector businesses.
Local Councils can take action against noisy, unruly. Risk Taking and Fiscal Smoothing with Sovereign Wealth Funds in Advanced Economies Knut Anton Mork Snorre Lindset We analyse the interaction between fiscal policy and portfolio management for the government of an advanced economy with a sovereign-wealth fund (SWF).