CLIMATE CHANGE ECONOMICS AND POLICY
Reflect: In module 2 the economics of climate change and policy is introduced. In week 4, economic theory relating to externalities and public goods is introduced. It is argued that GHG emissions are an externality in the production and consumption of fossil fuels and that GHG mitigation has the characteristics of a public good. In week 5, BCA of climate change is introduced, including the potential risks and uncertainty. In week 6, the policies of mitigation and adaptation are introduced.
Respond: Use the readings and lecture notes for assistance. (Submit the tutorial to the dropbox by the due date)
1. Why is the mitigation of GHG's characterised as a public good and what is the main implication of this?
2. Assume you are the principal advisor of the Minister for the Environment. The Minister has an upcoming media interview about a proposed carbon tax and would like precise and concise answers for the following potential topics.
(a) In three dot points explain the rationale for the government's intervention to mitigate climate change?
(b) In three dot points explain why a carbon tax is the preferred policy?
3. Write a one paragraph response to the following question. "Why do most economists put their trust in ‘market-based' solutions as opposed to direct government interventions (so called command and control approaches) to mitigate GHGs?"
The assignment is related to economics of climate change and various policy options.The advantages and limitations of different policy instruments are discussed. A precise comparison between the market based solution and traditional command and control method is also discussed here.
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Global climate change mitigation is an excellent example of global public good. The two key characteristics of public good namely non excludability and non-rivalry in consumption can be applicable to climate change mitigation. If one country gets benefit from reductions in climate change,
it will not reduce other countries benefit from this reduction. Moreover the mitigation efforts cannot be restricted to a particular nation. If one country puts mitigation efforts then other countries cannot be excluded from enjoying the benefits of these efforts though they do not have any contribution to mitigation efforts. The gains from mitigation efforts provide the benefits to all the countries even to those who have not invested into the abatement policies.
Like other public good, mitigation of GHG is vulnerable to free rider problem.Hence economic of climate change identifies the mitigation of Greenhouse gas as a public good. But the adaptation to climate change is referred to as a private good. This is because it only benefits the country that invests onadaptation. Free rider problem is much more limited in case of adaptation.From the perspective of an individual country, mitigation of green- house emission can be considered as a prisoner’s dilemma game.