Valuing Climate Change Economics and Policy

Question: Discuss about the Valuing Climate Change Economics and Policy. Answer: Introduction: As per the first question, this question has focused to the mitigation of the green house gas, which is characterised as the public goods. This is also beneficial to identify the implication of the Green house gas. In this context, Pindyck (2013) mentioned that green house gas can trap the heat of the sun. As a result, the surface of the planet is getting warmer. Hence, the level of carbon dioxide has been increasing day by day and it is difficult for the people to survive freely in the earth. The emission of Green house gas has a negative externality on the earth. It can be discussed with the help of the concept of spillover cost. The concept of spill over cost is helpful to understand the amount of loss or damage. If the uses of carbon dioxide can be reduced, the green house gas can be reduced. In this connection, Government of Australia can impose tax on the consumption of fossil fuel in terms of generating of spill over costs. Therefore, this impose of taxation will rise the cost of production of the fossil fuel. According to Fankhauser (2013), higher the total cost, greater will be the true cost of the production as it considers the spill over costs in terms of pollution. The green house gas producers impose the costs on the earth as well as on the future generations. Nevertheless, the consumers do not positively suffer from the effect of this action. In order to discuss the role of the governments intervention to reduce the climatic change, Fankhauser (2013) stated that there are three rationale, which can be explained briefly in the following: 1. Government of Australia can evaluate the advantage and can compare with the help of cost in terms of cost benefit analysis. According to the cost benefit analysis, it aimed to the environmental protection in terms of the integral portion of the public policies. 2. On the other hand, the imposition of taxation on the consumption of the fossil fuel by government, the per unit fees is received by the countrys government. Government intervene to reduce the long term and negative change of the climate. 3. Moreover, as per the statement of Pindyck (2013), the concept of double dividend stated that it reflects to lowering down the emissions of GHG emissions in order to enhance the revenue for the government of Australia. The benefits of the carbon tax can be discussed briefly in the following: 1. According to Fankhauser (2013), carbon tax can reduce or internalise the indirect externality of the carbon emissions. As the imposition of tax on the price of the fossil fuel, the consumption and the uses of the fossil fuel may reduce. Fossil fuel is the reason of the emissions of the carbon dioxide. 2. In addition, imposition of tax on the fossil fuel may increase the consumption of the solar gases or the other natural gases, which do not emit carbon dioxide and hence, the level of green house gas will not be increased. Therefore, the producers of the nature gas will be beneficial. 3. Moreover, carbon tax also allows the other energy by considering the cost competitive compared to the cheaper fuels. In the words of Pindyck (2013), market based solution is important as it focused to provide the incentives to the polluters to decrease as well as avoid the indirect externalities. Market based solution is concern about the market failure due to the negative externalities. This can be occurred with the help of the incorporation of the external production cost. In addition, the consumption function in terms of taxation or by creation of the property rights can control the market from failure. Therefore, the market-based solution is differentiated from the concept of regulatory activities. However, Fankhauser (2013) argued that, most of the economists prefer the market based solution compared to the government intervention in order to reduce the effect of green house gas. In this respect, it can be mentioned that market based solution allow to fixed a higher level of pollution in turn it can achieve the minimum level of cost with the help of the innovative technological uses. Moreover, the efficiency of this type of solution is affected in terms of market liquidity, level of the property rights as well as the power of the existing market. In case of government intervention, it imposes tax on the consumption of fossil fuels. As a result, the reduction of the sale of fossil fuel decreases the profitability of the fossil fuel producers. References Fankhauser, S., 2013.Valuing climate change: the economics of the greenhouse. Routledge. Pindyck, R.S., 2013. Climate change policy: What do the models tell us?.Journal of Economic Literature,51(3), pp.860-872.