Climate ChangeIt's easy to see mistakes with hindsight, however, sometimes there seems no excuse. An example that comes to mind is the splurge of subsidies for green electricity generation which has caused such a glut of power-generating capacity that it has deterred private investment. How did the economists not see that coming? Anyway, here's another one which economists seem to have missed... As a primer, you might want to catch up on how carbon trading works. The BBC has a very simple explanation.
https://www.bbc.com/news/science-environment-34356604 The article also touches on some of the pros and cons, but at face value, the concept seems fair enough. However, I had an inkling feeling that the printing of carbon allowances might increase consumer prices. With a little bit of analysis, we can see this is true but worse than that - in an economic climate of high demand, carbon trading throws a lifeline to the oil gas and coal extraction industries. So imagine, that you and I both own separate factories which produce coffee-making machines. We both get given the same number of CO2 emissions permits to use, and the coffee-making machines we produce sell at the same price. But me, being concerned about climate change, invest in heat insulation for my factory. Because of this, my energy usage plummets and at the end of the year, I have some surplus CO2 emissions permits, whereas you have used up all your permits, so I can sell you mine. At first glance, this seems fine. I have an additional stream of cash through selling my unused permits, so I can afford to reduce my prices to undercut you. To make matters worse for you, you have additional costs because you have to buy additional permits to the ones you were allocated because you are using too much energy to heat your factory. Because of this extra cost, you are going to have to increase the price of your coffee makers. So the economists are right - there is an incentive to reduce carbon emissions, and the world gets a little closer to becoming carbon neutral. But why would I reduce my prices? If you are forced to increase your prices by 20% because of the extra cost of purchasing CO2 emissions permits, then I can increase my prices by 18% and still undercut you. So, between both of our factories, we have zero extra costs because the purchasing and selling of permits cancel each other out and yet on average we can sell our coffee-making machines at an 18-20% premium. Good for the industry, but bad for the consumer. So far, I have just been discussing coffee-making machines, but eventually, this carbon market will have to cover most industries. This means consumers paying more for stuff and the factories making it becoming more flush with cash. Consequently, energy companies will be able to charge factories more. So ironically, consumers will indirectly be funding the oil, gas and coal industries to dig up even more carbon. Such is the benefit to these global extraction industries, it'd be very tempting to think that an agreement behind closed doors was formulated between the governance we have today and big energy. But I'm not convinced that there is such a conspiracy. It's more likely that the governance we have today cannot recognise it's own incompetence. There are effective solutions to climate change which could be implemented today, however, the present political leadership would have to admit they are ineffective and stand down to make way for new leadership, and that isn't gonna happen as long as politicians crave power more than fixing problems.
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AuthorHi, I'm Christopher Taylor, and I mainly write about things that aren't what they seem. Forthcoming Issues IS MODERN MONETARY THEORY WISHFUL THINKING? TAX NEGATIVE EXTERNALITIES, NOT WORK WHY PROPERTIES ARE SO EXPENSIVE WHY HEALTHCARE IN THE US IS SO EXPENSIVE WHY SOMALI PIRATES ARE PAID SUCH LARGE RANSOMS DISCOUNT CLUB FAVOURING GOODS PRODUCED IN DEMOCRATIC NATIONS THE SUBDUING OF CHILDREN MUST STOP THE PEOPLES PROTEST BOT GERMANY'S SILENT CURRENCY MANIPULATION MONEY (THE LACK OF) IS NO REASON THERE IS ALWAYS A SIMPLE SOLUTION... WHICH DOESN'T WORK THE TICTOK-GENERATION MESSAGE TO PUTIN HOW COMMERCIAL BANKS LEND AN EU LEADERSHIP DEFICIT DUMPING ON AFRICA TO PAY PUTIN |