In economics, negative externalities are side-effects of economic activities. They arise somewhere during the lifecycle of products or services, are not considered by the market actors but have an influence on society’s welfare. When the negative effects (social costs) that are not taken into account at the market exceed the private gain, the market outcome does not maximise society’s welfare and thus externalities are one case of market failure.
Table of Contents
1. What are the characteristics of the GHG-emission externality?
2. What are examples for additional climate policy-related technology externalities?
3. Is more than one policy instrument required to tackle these externalities? If yes, why?
4. What would be suitable policy instruments?
Objectives and Topics
The text provides an economic analysis of climate change, specifically focusing on greenhouse gas (GHG) emissions and green technology as market failures. The central objective is to identify why these externalities occur and to evaluate appropriate policy instruments for mitigation.
- Characteristics of GHG-emission externalities
- Positive externalities of technological innovation
- Market failure due to incomplete information
- Policy instruments for internalizing social costs
- Integration of incentive-based and regulatory approaches
Excerpt from the book
What are the characteristics of the GHG-emission externality?
In economics, negative externalities are side-effects of economic activities. They arise somewhere during the lifecycle of products or services, are not considered by the market actors but have an influence on society’s welfare. When the negative effects (social costs) that are not taken into account at the market exceed the private gain, the market outcome does not maximise society’s welfare and thus externalities are one case of market failure (Metcalf, 2009; Fullerton & Stavins, 1998).
Greenhouse gas (GHG) emissions, in particular, are produced during the production, transport and disposal/recycling of all kinds of goods and GHG emissions have most likely a huge negative impact on society’s welfare by fostering climate change that tremendously exceeds the individual gains of the market actors (Stern, 2006). Neither the producers nor the consumers of goods that are causing GHG emissions are directly and personally affected by these emissions. Moreover, the damage often falls on people in developing countries or even on future generations. To conclude, GHG-emission can be seen as a market externality, because those responsible for the emissions do not pay the costs and thus have no economic incentive to reduce the emissions. In strict economic view, the market fails by producing more greenhouse gases than the socially optimal level (Nemet, 2013; Metcalf, 2009).
Summary of Chapters
1. What are the characteristics of the GHG-emission externality?: This chapter defines GHG emissions as negative market externalities that occur when social costs exceed private gains, leading to over-production.
2. What are examples for additional climate policy-related technology externalities?: This section explores how green technology creates positive externalities, which are paradoxically underprovided by competitive markets due to high costs and knowledge spillover effects.
3. Is more than one policy instrument required to tackle these externalities? If yes, why?: It argues that because both negative and positive externalities exist, a combination of different policy approaches is necessary for effective mitigation.
4. What would be suitable policy instruments?: This chapter evaluates economic solutions like carbon taxes and cap-and-trade systems, while also proposing public investment and intellectual property protection to stimulate green innovation.
Keywords
Climate change, GHG emissions, negative externalities, positive externalities, market failure, policy instruments, decarbonization, innovation, carbon tax, cap-and-trade, social costs, green technology, market intervention, environmental policy, economic incentives
Frequently Asked Questions
What is the fundamental subject of this text?
The text focuses on the economic perspective of climate change, specifically identifying greenhouse gas emissions and technological innovation as market failures that require policy intervention.
What are the primary thematic areas addressed?
The core themes include negative externalities of pollution, positive externalities of new technologies, and the evaluation of diverse policy tools to correct these market imbalances.
What is the primary research objective?
The objective is to explain the nature of climate-related market failures and determine effective policy frameworks for internalizing social costs and incentivizing sustainable innovation.
Which scientific methodology is utilized?
The work utilizes a theoretical economic approach, drawing on established literature and existing frameworks of environmental economics to analyze market mechanisms.
What is discussed in the main body of the work?
The main body examines the specific failures related to emission production, the barriers to green technology diffusion, and the comparative strengths of incentive-based versus regulatory instruments.
Which keywords characterize this analysis?
Key terms include market failure, GHG emissions, externalities, carbon tax, cap-and-trade, innovation, and environmental policy.
Why is green technology often underprovided by the market?
Green technology is underprovided because research produces positive externalities that benefit competitors and society at large, while the innovating firm bears the high costs without capturing all the value.
How does a cap-and-trade system differ from a standard emission tax?
A cap-and-trade system sets a fixed maximum quota of emissions for the economy while allowing firms to trade allowances, ensuring that emission reductions occur where they are most cost-effective.
- Citation du texte
- Simon Valentin (Auteur), 2017, Externalities of climate change and how to tackle them, Munich, GRIN Verlag, https://www.grin.com/document/386156
