A Light in the Dark?

Nearly everyday we are told how climate change poses a significant threat to human life. From rising sea levels, to agricultural threats, and increased rates of illness and disease (Walther, 2002, p. 391), it would make sense that measures were being taken to prevent the worst from happening. However, debate still rages on whether climate change is real and policy change after policy change to combat it is either shot down or repealed by a government who just does not see value in straying away from “business as usual”.


Despite these roadblocks, economists are forming their own ways to deal with climate change, especially since it is predicted to not only affect human health, but the economy as well in terms of factors of production and costs associated with recovering from severe storm damage (Rose & Normandy, 2011, p. 144). However, as climate change is a “wicked problem,” and a quite large one at that, tools are being used to combat certain factors that contribute to climate change, such as limiting carbon dioxide emissions and pollution through Carbon taxes, cap-and-trade programs, and economic models based on Sustainable Living or a “Techno-market” (Parapatits, 2017, p. 20).

Though there are a variety of greenhouse gases that accumulate in the atmosphere and contribute to climate change, carbon dioxide is the most prominent one emitted by humans at 82% in 2015 (U.S. Environmental Protection Agency, 2015). It is mainly released by burning fossil fuels and as we are currently a world dependent on fossil fuels, it makes sense that measures are being taken to minimize carbon dioxide emissions. From a market-based perspective, economists have come up with two main proposals to assist in climate change mitigation: carbon taxes and cap and trade programs.

Carbon taxes, otherwise known as emissions charges, are “fees collected by the government, levied on each unit of pollutant emitted into the air or water” (Tietenberg & Lewis, 2015, p. 354). Though effective in ideology, the policy itself is a bit harder to control as governments, who would be collecting the fee, may have to do some trial-and-error to find the exact amount that should be charged per unit of pollution produced. As companies are not likely to provide all their information in regards to how much they are emitting, this means fees can be highly volatile the first few years of implementation until a final standard is agreed upon (Tietenberg & Lewis, 2015, p. 355). However, once a tax rate is agreed upon, this can be a highly effective policy as long as companies chose to act in their own self-interest to maximize their profits. In order to avoid losing money due to the tax, they will be incentivized to reduce an optimal amount of emissions within the limit set by the government.

The second strategy, cap-and-trade, is a system in which all polluting sources face a limit on their emissions and are allocated, or sold, allowances to emit (Tietenberg & Lewis, 2015, p. 356). In 2005, the EU was the first country to implement this type of policy and since then, it has been considered or implemented elsewhere, such as in China, New Zealand, Japan, Australia, South Korea, and North America (Klinsky, 2015, p. 106). This method is a bit more effective than carbon taxation because governments do not necessarily need to know all the information on costs and emissions to limit how much of a pollutant can be produced. Instead, this method leaves it up to businesses and the market to reduce emissions by allowing companies to trade permits with one another if one company needs it more than the other due to their cost-effectiveness of cutting emissions. Additionally, placing a cost on emissions, which are seen as market-failures, internalizes them and allows the market to actually take them into account (Klinsky, 2015, p. 106). This allows capitalist markets to essentially remain the same in structure without having to make any big, sweeping policy changes.

Another way economists are attempting to deal with climate change involves reanalyzing markets to determine if alternatives exist that help humans, the economy, and the environment coexist. One such market idea is known as the “techno-market.” This market system relies on technology and the economy to develop simultaneously so that technological innovations that can benefit the environment, such as windmills and solar panels, are made in a cost-effective way that ensures market prices can be achieved when finally released to the public (Reddy, Aravindhan, & Mallick, 2017, p. 754). Through a cost-benefit analysis approach, the techno-economy can determine several factors leading to sustainable development such as an eco-technology’s cash flow over a specific amount of time, determining the economic feasibility of a specific technology and product, and gathering insight into the impact of scalability for a given technology (Omni-Tech International, Ltd., n.d).


A basic flow-chart on the process of bio-algal refining.

One of the newest and innovative technologies being researched today in regards to the techno-economy is the feasibility of using microalgae-based bio fuels (Thomassen, Vila, Dael, Lemmens, & Passel, 2016, p. 1850). Utilizing a bioalgal refining process, scientists have found a way to create fuels from algae that have fewer air pollutant emissions than conventional fuels, which can help us transition away from fossil fuels, mitigating our contribution to climate change. Though further scientific research and economic analysis is needed in the case of bioalgal fuels, further research could help us transition away from fossil fuels so long as solutions can be found to the excessive land and water use necessary to refine these fuels. By pairing up with a techno-economic system, hopefully a solution can be reached where the processing and use benefits of these fuels outweigh the costs and help us become a more “green” economy.

While climate change is a hefty problem to have to try and solve, the collaboration between scientists, governments, and economists is yielding hopeful results that can help us transition to becoming a more environmentally friendly nation and economy. Though many people are not thrilled when they hear about increasing taxes, solutions like carbon taxation can help mitigate climate impacts and the revenue generated can be applied to furthering climate research and, if done efficiently, can give us sway to reduce taxes in other areas, such as property taxes or sales tax. Cap-and-trade can also help internalize the costs of externalities such as pollution, forcing companies to be more mindful when emitting pollutants. Additionally, by pairing up with technological innovators, the United States and its economy can become more eco-centered, subsidizing windmills and solar power as opposed to fossil fuels. Not only will this help mitigate climate change, but it can also improve the health and safety of citizens who may live in hazardous areas due to fossil fuel emissions. No matter what one’s position may be on the climate debate, the health and safety of citizens should come first and economists are brainstorming how to do just that while still keeping the economy running.

By Christina Thomas


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