Dealing with climate change – regulations versus market methods

Do market approaches have greater potential to reduce carbon emission than regulatory approaches?

Dealing with climate change – regulations versus market methods
Yes because...

In the past there was no cost for polluting the atmosphere because although everyone needs air, no o...

In the past there was no cost for polluting the atmosphere because although everyone needs air, no one actually owns it (so you weren’t charged for messing it up). Market mechanisms are about putting a cost on carbon emissions so that polluting becomes expensive. They will give a strong push to business and families to be more careful in their use of energy. Bringing in new technology to cut the amount of carbon their factories, vehicles and homes put out will save them money. The more they cut emissions, the more they save (and the more profits companies will make). In contrast, regulations have only a cost for companies and consumers so they will only do the bare minimum to meet the government’s standards.

No because...

We already have regulations to cut carbon emissions so we don’t need market methods. After all, businesses’ greed for profits has led them to pour pollution into our air so they are unlikely to stop unless the government makes them. There are good examples of successful regulation. California and European governments have both set standards for fuel efficiency and exhaust levels to successfully reduce vehicles’ impact on the environment. There are also plans to ban the sale of ordinary light bulbs so that people have to switch to low-energy ones instead. We should aim to expand and tighten up these existing regulations rather than take a gamble on something untested.

Dealing with climate change – regulations versus market methods
Yes because...

The market will work better at a global level. Usually each country sets its own regulations and so...

The market will work better at a global level. Usually each country sets its own regulations and so things like pollution limits and vehicle fuel standards differ a lot. This will make it difficult and expensive for international business to follow lots of different regulations. And as regulating business raises its costs and can hit trade and economic growth, individual countries may choose to set weak standards (especially if they are developing countries). Market methods are more likely to work across borders, tying every country into the same international system, just as global trade and finance already do. Developing states are more likely to come on board with a market system, as they can profit from a carbon tax or from selling carbon permits.

No because...

Using the market sounds good in theory but there are too many problems for it to work in practice. There are lots of different types of carbon emissions, and some do much more damage to the climate than others. Allowing for these differences in a market system is hard, but regulations can be more flexible, targeting the worst types of emissions with tougher rules. Also, some important countries like China and India release a lot of carbon into the air but their economies are not as open as those of most western countries. This means a market system wouldn’t work equally across the world. Unless we put off dealing with climate change until all economies work the same way, regulation is the only means to make an immediate difference.

Dealing with climate change – regulations versus market methods
Yes because...

Using the market will persuade people to choose greener ways of living which put less carbon into th...

Using the market will persuade people to choose greener ways of living which put less carbon into the air. Regulations force people to do things against their will, which can be unfair and could make green ideas very unpopular. Market mechanisms change the prices people will pay but still allow them choices about how they will live. A carbon tax or cap-and-trade system would both raise the cost of electricity and gasoline, and so encourage (rather than force) many people to change their lifestyle. They may choose to live nearer work or their children’s schools, take the bus or train rather than drive, holiday at home rather than fly overseas, and update their home’s heating system for one which uses less energy. Such changes will come quite quickly with market mechanisms, but regulations often take ages to take effect. Usually tough new standards only apply to new buildings, cars or products, but most people will make do with their old ones for many years. This means it might take more than a decade after new rules come in for emissions to drop by much.

No because...

Economists love the idea of market mechanisms but they don’t understand ordinary people. Consumers are actually not very sensitive to energy price rises. If the energy prices go up, they will still need to cook, and to light and heat their homes. So they will grumble but pay more rather than cutting the amount of energy they use. In the same way, if they need the car to go to work, or take children to school, they will not drive any less if fuel costs more. Instead they will cut back on other things, like holidays, clothes or going out. Poor people with no spare money will end up suffering more than the rich do, whereas regulations will make everyone contribute to reducing emissions. And it might make sense to spend money making your house energy efficient, or to buy a more expensive but greener car. However, the up-front cost of doing these things is too much for most people to afford, even if they might get it back in lower costs many years later. If governments want to get people to change their behaviour, they will have to change the law to make them do so.

Dealing with climate change – regulations versus market methods
Yes because...

Market solutions can take advantage of the fact that it does not cost the same amount everywhere to ...

Market solutions can take advantage of the fact that it does not cost the same amount everywhere to reduce carbon emissions. Western cars, homes and factories are often so efficient that reducing their carbon output by even a tiny amount would cost a huge sum of money. In contrast, the older technology in less developed countries is often much more polluting. Spending a little bit of money bringing it up to date would save a huge amount of carbon being pumped out. Putting a price on carbon means that money will be spent where it will have the greatest effect. This means we can tackle climate change more quickly and with less damage to the world economy than if we used regulations. That market mechanisms are likely to move money from the rich world to the poor is a positive side-effect of the system.

No because...

Regulations are the best way to make every country play its part in tackling climate change. Rich countries are the ones which have pumped the most carbon into the atmosphere, but market mechanisms will allow them to avoid their moral duty to change the most. A carbon market would mean they can buy a permit to emit carbon from a poorer country rather than change their own ways. In exchange the developing country doesn’t even need to actually reduce its own carbon output – it can just promise not to increase it as much as it might have done. Given the weak government and corruption in some developing countries, many people wonder how much some of these promises are worth.

Dealing with climate change – regulations versus market methods
Yes because...

The European trading systems has run into problems, but this is mostly because politicians interfere...

The European trading systems has run into problems, but this is mostly because politicians interfered to protect their own countries’ industries. Such meddling is even more common with government regulations, which often change so quickly that business cannot plan properly for the future. The EU is already improving its carbon trading scheme, and we can learn from their experiences to design a global system. For example, a smaller number of permits can be given out and they should be auctioned off to the highest bidders rather than given for free to old and inefficient industries. On the other hand, we could choose to create a carbon tax instead, which would be a very reliable way of putting a cost on pollution and ensuring emissions are cut.

No because...

Regulations are more reliable than trying to put a price on carbon emissions. The European carbon trading system has not worked well. The price for permits to release carbon into the air has jumped up and down unpredictably, before settling at such a low level it is unlikely to have any impact on companies’ behaviour. Regulations are a better way of ensuring change takes place as business will know for certain what action it has to take. This will allow companies to plan properly and will encourage research and development in green technologies.

Dealing with climate change – regulations versus market methods
Yes because...

We all have some responsibility for climate change. Our lifestyles result in large amounts of carbo...

We all have some responsibility for climate change. Our lifestyles result in large amounts of carbon being released into the air. Unless ordinary people can be brought to change their behaviour we will never tackle climate change. So it is fair to use market methods that raise the price of energy to encourage us to change our behaviour. Ways can be found to make sure that no one suffers under this new system. For example, other taxes can be cut to make up for having to pay a carbon tax. And even if emissions were tackled by regulation instead, that would still have the effect of raising the cost of energy and fuel. Producers would pass the increased costs of regulation on to consumers, so we will have to pay more one way or another.

No because...

Trying to put a price on carbon unfairly punishes ordinary families. Making quite poor people pay more to heat their homes, cook meals, drive their vehicles, etc will push many of them into poverty. We already pay high taxes and this is just another way politicians have found to get their hands in our wallets. By contrast, big business makes plenty of profits and can afford to spend some of them meeting new emissions regulations.

Dealing with climate change – regulations versus market methods
Yes because...

Market systems are easy to understand and run efficiently because everyone acts out of self-interest...

Market systems are easy to understand and run efficiently because everyone acts out of self-interest. Regulation means government control and that means plenty of bureaucracy and red tape. A huge, complicated and costly system will be created to manage any new emission rules and standards. Not only will this probably raise taxes, it will also hurt the economy as business will struggle to cope with the regulations. And because governments are so bad at regulation, the chances are that the system will fail to cut emissions much. Companies may cheat on the rules, thinking rightly that they are unlikely to get caught. Even if they are, any fines will probably be smaller than the cost of obeying the regulations.

No because...

Regulations are the best way to cut carbon emissions because unlike market methods they can be introduced with public support. Opinion polls show that people understand and back regulations like fuel efficiency rules, home energy standards, etc. By contrast, carbon taxes are very unpopular because people do not trust the politicians who wish to introduce them. Cap and trade systems are so difficult to explain to ordinary consumers that the public will not back them. And running an international cap and trade system would require a big bureaucracy too, to enforce the emissions limits and prevent cheating. But unlike with national regulations, a cap and trade bureaucracy would be an international body, and will be seen as an unpopular threat to our national independence.



Dealing with climate change – regulations versus market methods

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