Cap and Trade System

Most recently, California has adopted the 'cap and trade system' in an attempt to reduce carbon emissions and encourage investments in reducing emissions.
Below is the link:

http://www.huffingtonpost.com/2012/11/12/california-cap-and-trade_n_2118991.html?utm_hp_ref=green

A cap and trade strategy works to reduce carbon emissions via financial incentives; “caps” establish emissions limits and fines for exceeding those limits, while companies operating below their carbon limits can sell or “trade” their offsets to companies that are operating above the limits. By having to pay to emit carbon into the environment, economists propose that this creates an incentive for research and development.

Is this effective? An analysis by the New Energy Finance research firm estimated that the trading system accounted for about 40 percent of the drop in Europe's greenhouse gas reductions in 2008.
Warren Buffet is strongly against a cap and trade system as he believes it is a regressive tax, which will only be passed on to consumers in the form of higher prices.

With rising energy prices, firms will look for ways to cut their energy usage. In addition, electrical appliances should be made more efficent to also reduce household carbon emissions, hence, reducing overall emissions across the world.  

Climate Change in Monetary Terms

'The Skeptical Economist' by Jonathon Aldred is an interesting read in analysing how economic and ethics link with analysing 'what and whether' an action should be taken when dealing with climate change.

Traditional economic analysis recommends that a cost benefit analysis should be taken, but common sense tells us that it is not possible to monetarise all costs and benefits of climate change. Policies to tackle climate change today may cost a lot, but in the future it will save many lives. Economics would value the lives taken in terms of money. Once again, is this a sound method to use and can we put a monetary value on life?

The key organisation in charge of dealing with climate change policy on an international level is the Intergovernmental Panel on Climate Change (IPCC). The IPPC argued that the conventional economic way of placing monetary values on life reflect market prices is wrong. This way of valuing life leads to poor people having a low value of life, which means they are worth less! The IPCC report placed a value of $1,500,000 on lives in rich countries, $300,000 on middle-income countries and only $100,000 on poor countries. This difference also reveals that climate change policy is not beneficiary in poor countries, relative to rich countries.

Economists discount the future, which means that outcomes in the future matter less. Does this not ignore the gradual benefits of implementing a climate change policy? It is true that the outcomes of the climate change policy may be uncertain, but is it not our duty to protect the environment regardless. Famous philosopher John Rawls uses a 'veil of ignorance' to highlight the importance of acting in a way that looks after the wellbeing of future generations. Under the 'veil of ignorance' actions and decisions should be made, disguising which class,society and even generation you belong to making it just for everyone. This idea takes away self-interest and the discriminatory factors experienced today due to wealth diffrences. Rich countries have the resources to invest in research and development to reduce their carbon footprints, whilst poor people are even disregarded on how much their life is worth.

Malthusian Epoch

The Anthropocene era is thought to have began with the Industrial Revolution. This is also the time at which British economist Thomas R Malthus published his most influential Essay on the Principle of Population. According to his Malthusian model, an increase in living standards will simply cause population to grow, reducing income because land is fixed and the power of population is indefinitely greater than the power in the earth to produce subsistence for man.

However, this relationship did not last for very long and in 1965, economic and agriculture development economist, Ester Boserup argued that agricultural productivity is not fixed, but is endogenous to population pressures. On the one hand, Malthusian theory argues that agriculture is inelastic, but Boserup claimed that technological advancements are encouraged in society to find alternative ways of feeding society. This is a long-term process, but population can double several times without having to face starvation or lack of employment. She sets out this theory in her book The Conditions of Agriculture Growth. Boserup model of agriculture itensification, is characterised by land-saving investment, adoption of improved agriculture practices, development of nonagriculture economic activities, diversification of income sources etc. In fact, William Easterly, an American economist, specialising in economic growth and foreign aid, finds this relationship to exist and states that between 1960 and 1990, population growth has doubled, but food output has tripled supporting this view.

It is true, that the more number of people there are on earth, the more greenhoue gases will be emitted. However, the more people there are, the more incentives there will be to develop renewable resources and adopt strategies to reduce our impact on the planet. An interesting journal by Rahman et al. (1993), claims that population is not a contributor to climate change and emphasis should be made on reducing per capita emissions, rather than slowing population growth. Overall, the empirical evidence points out that Malthus theory does not hold and humans are capable of making changes to survive. However, we still need a clear strategy to prevent damage to our planet.