Climate Change Policies - tutor2u

Climate Change Policies - tutor2u

Climate Change Policies Market failure and possible government failure Market failure with a difference According to Stern: Climate change is an externality with a difference: Global Long-term Uncertain Potentially large and irreversible Climate change is the biggest market failure the world has ever seen Projected impacts of climate change 0C

Food Water Global temperature change (relative to pre-industrial) 1C 2C 3C 4C 5C Falling crop yields in many areas, particularly developing regions Falling yields in many Possible rising yields in developed regions some high latitude regions Small mountain glaciers

disappear water supplies threatened in several areas Significant decreases in water availability in many areas, including Mediterranean and Southern Africa Sea level rise threatens major cities Ecosystems Extensive Damage to Coral Reefs Rising number of species face extinction

Extreme Rising intensity of storms, forest fires, droughts, flooding and heat waves Weather Events Risk of Abrupt and Increasing risk of dangerous feedbacks and Major Irreversible abrupt, large-scale shifts in the climate system Changes Sources of emissions Climate change policies and A2 economics 1. Identify some of the policies 2. Analyse how they might work 3. Evaluate them

Effectiveness Short term (e.g. CO2 stabilisation) Medium term (shift towards low carbon economy) Equity issues E.g. rich and poor countries Households of different income Current and future generations 4. 5. 6. 7. Consider combinations of policies Recognise the different stakeholders There are costs of action and costs of inaction

Key issue is sustainability and creating the right framework Kyoto Protocol Developed Countries Signed: Greenhouse Gases by 5% by 2012 Reduce or Offset National Targets, Governments responsible Mechanisms: Clean Development Mechanism Emissions Trading Runs out in 2012 new agreement needed Policies to mitigate impact of climate change

Pricing the externality: Carbon tax Carbon trading Implicit pricing through regulation / legislation Bringing forward lower carbon technology- research, development and deployment Which policies provide the best incentive for this? Income payments for environmental husbandry e.g. to combat deforestation Overcoming information barriers Promoting a shared understanding of responsible behaviour across all societies Deforestation

Key concepts Marginal external costs and benefits Marginal abatement costs Relative prices (e.g. of different energy sources) Incentives and substitution effects Investment and research Economies of scale Commitments

Game theory and climate change negotiations Carbon trading Market based mechanism Cap and trade More certain about volume of carbon reduction Those firms that are good at reducing CO2 will have permits to sell these become an asset on the balance sheet Putting a price on carbon Importance of

Verification and commitment Scarcity Price expectations Clean Development Mechanism Rewarding efficiency and action But pitfalls of the EU ETS as it has operated so far an example of government failure? Carbon taxes Make the polluter pay Internalising externalities Who to tax? Producer and/or consumer? Can be revenue neutral Compensation to reduce inequities

Ring-fenced taxation Need for multi-lateral approach to avoid competitiveness issues Less certainty about emission reduction Worries about who will bear burden of higher energy prices Many EU countries now introducing their own green taxes EU green taxes Taxes on batteries in Belgium, Bulgaria, Denmark, Italy, Latvia, Lithuania and Sweden Tax on plastic carrier bags in Denmark, Italy and Ireland

Tax on disposable beverage containers in Belgium, Denmark, Estonia, Finland, Latvia, Lithuania, Poland and Sweden Deposit-refund schemes in Austria, Germany and the Netherlands Taxes on tyres in Bulgaria, Denmark, Finland, Latvia and Sweden Taxes on disposable cameras in Belgium

Taxes on lubricant oil in Finland, Italy, Latvia, Norway, Slovenia, Spain and Sweden Landfill tax in the UK

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