Market failure, government failure and externalities in climate change mitigation: The case for a carbon tax

Abstract

SUMMARYThis article addresses possible approaches to solving the problem of climate change by reducing greenhouse gas emissions (GHGE). It considers some of the core science on climate change, leading to a discussion of market failure, government failure and externalities. The European Union's emissions trading scheme (ETS) is cited as an example of a failure in an environment of both market failure and government failure. The discussion then focuses on carbon costing and pricing, the design features of a carbon tax and the main advantages of a carbon tax over an ETS.

Discerning and Addressing Environmental Failures in Policy Scenarios Using Planning Support System (PSS) Technologies

“…In the literature on environmental market failures, environmental impacts are often considered undervalued; typically described as an externality or side effect instead of a primary or secondary cost [4] The consistent undervaluation of environmental costs often results in suboptimal decisions for individuals, organizations, or markets as a whole [4,5]. The root causes of these environmental market failures are difficult to pin down, although they are typically attributed to information imperfection, global externalities that do not affect local benefits, and/or complicated coordination of technology and ecological innovation.…”

“…The root causes of these environmental market failures are difficult to pin down, although they are typically attributed to information imperfection, global externalities that do not affect local benefits, and/or complicated coordination of technology and ecological innovation. Andrew [5] points out that when market participants have sparse or uneven information, sub-optimal decisions are likely to ensue. This suggests that if information on environmental impacts are not known, market participants in routine development decisions are likely to generate environmental market failures [5][6][7].…”

“…Andrew [5] points out that when market participants have sparse or uneven information, sub-optimal decisions are likely to ensue. This suggests that if information on environmental impacts are not known, market participants in routine development decisions are likely to generate environmental market failures [5][6][7].…”

“…These are usually a product of asymmetric or incomplete access to information [5]. This means that certain types of information may be inaccessible to one party but not another, producing an asymmetrical transaction.…”

Climate change, land use and land surveyors

“…Also, IPCC (2014b) writes that pricing carbon emission (both by taxation and cap-andtrade) can achieve mitigation in a cost-effective way, but also concludes that so far these measures are implemented with diverse effect, because of 'national circumstances'. The latter implicitly refers to the failure of the European ETS: the far too generous granting of allowances and occurrence of fraud brought it almost to a collapse, making Andrew (2008) conclude 'The EU ETS should be a warning to all'. In addition, also scientific publications give evidence that currently a carbon tax is the most effective means of reducing emissions such as Hsu (2011), who evaluates four options namely carbon tax, command-and-control regulation, cap-and-trade, and government subsidies and convincingly concludes in favour of carbon taxation.…”