The Intergovernmental Panel on Climate Change have published several reports over the past 20 years which conclude that anthropogenic emissions of greenhouse gases are contributing to a general warming of our climate and that the evidence for this impact is unequivocal [Schmidt pp 1]. The scientific community appears to have reached a general consensus that climate change and global warming are interrelated issues and anthropogenic influences such as the combustion of fossil fuel energy resources, deforestation and the release of industrial chemicals are rapidly heating the earth to temperature not before experienced in our global history [Johansen 2002]. A serious and immediate issue the impacts of this warming are far reaching, and the global community is faced with a growing need to try and effectively regulate the threat of climate change on a global scale. Climate change presents a unique challenge for economics as it is perhaps ones of the greatest examples of global market failure ever seen and ensuring global economic security as well as environmental sustainability is a difficult balance to achieve [Stern pp 1].
Climate change, as an environmental, economic and social issue, is markedly different from other pollution issues because it involves a pollutant emitted across the international boundaries that may not have any significant localised effects. Climate change is global in its causes and consequences, and the response requires international collective action [Stern pp 1]. Of all the challenges the world will face over the coming century, managing climate change is one of the most urgent and significant [Held pp 68] and economics has an important role to play in analysing climate change and informing and influencing regional, national and global policy [Stern pp 68]. There are several links in the chain of causality from human actions to the impacts of climate change on societies, environment and economics, and each link involves significant risk and uncertainty. As a result, much of the policy decisions the global community is making with regards to climate change is about the management of risk [Helm pp 69]. There is much to consider when looking at how we can begin to address the issue of climate change. There is a need to evaluate the potential impacts of global warming patterns on human and nonhuman societies, and to identify the means and costs of slowing warming to establish the most efficient and equitable policy approaches to tackling the problem [Nordhaus pp 6]. In tackling the issue of climate change an effective, efficient and equitable response requires deeper international co-operation in a variety of areas. These include the creation of price signals and markets for carbon, scientific research, infrastructure investment and economic development [Stern pp 1]. Over recent years the climate change debate has moved from debating whether climate mitigation action should be undertaken, to determining how extensive this action should be [Bosetti, pp 269]. The central question in the economic analysis of climate change policy concerns the degree to which current consumptions should be reduced to mitigate future consequences of climate change [Costello pp 8108].
International Agreements:
Taming climate change can only come through a global agreement. We might manage other problems locally but, because the atmosphere is a shared resource, we need a global agreement with all major parties on board in order to stop its deterioration. Climate change is a result of the externality associated with greenhouse gas emissions and has a number of features which distinguish it from other externalities [Stern pp 23]:
It is global in both its causation and consequences
The social, economic and environmental impacts of climate change are long-term and persistent. There is no quick fix.
The uncertainties and risks in the economic impacts are pervasive.
There is a serious and risk of major, irreversible change with non-marginal economic effects.
As a result climate change represents a paradigmatic case of a global challenge that can only be dealt with through a global consent on right remedial actions [Helm pp 18]. International agreements, protocols and treaties have become increasingly focused on delivering this target, however their effectiveness is of some debate. The Copenhagen Agreement in 2009 outlined plans for emissions reductions; however the 25 participating nations railed to reach any formal or binding agreements. For effective solutions, international agreement is a perquisite, and that is difficult to try and achieve when many of the developing nations have urgent problems of their own. It is becoming increasingly clear that international arrangements need to begin to consider how best to help facilitate the necessary changes in emissions and aid the growing social and environmental problems not directly linked to climate change. There is a need for a growing emphasis on engagement with sub-national action that is able to aggregate policy at both national and local levels. Without this, there is little change that agreed commitments will be reached and little change that future international agreements will be ratified by those nations whose economies are dependent on fossil fuel industries. International agreements simply do not work if local populations do not agree that the targets are feasible, and are not provided with sufficient information and resource to make them work.
Carbon Taxes:
When addressing environmental pollution regulation, command and control instruments such as increased taxation for the fossil fuel industries and improvements in the design factors of emission control technology have often been the conventional mitigation techniques [DeShazo pp 1540]. One such technique is carbon taxation whereby an inflated price on carbon and its related emissions provides incentives to reduce carbon intensity and makes fossil fuel sources relatively more expensive compared to renewables [Fischer pp 2]. Obviously the fossil fuel industry remains the biggest emitter when it comes to greenhouse gases and they are a heavy influence on climate change policies in many of the world's largest developed and developing nations. Government subsidies continue to make the economics of energy markets favourable to the fossil fuel industries, and increased taxation may be on way of alleviating this monopoly.
Taxation methods like this ensure that industries are regulated, and encourage the adoption of emission control technologies in the associated fossil fuel industries by creating an incentive to become more fuel efficient or switch to alternative fuel sources by fixing emissions intensity [World Bank pp 268]. These regulatory mechanisms are tangible, and are fairly easy to implement and enforce. One of the main concerns, however, is the measure of their effectiveness. Governments often have imperfect information about the costs of this form of enterprise and, as a result there is corresponding uncertainty about how much abatement will actually occur for a given tax level. If a government has an emission cap under a global agreement, then it may need to adjust the tax rate iteratively to keep emissions within the cap [World Bank pp 268].
Emissions Trading:
Today, the most commonly used policy tool when looking at climate change regulation is emissions trading. The cap-and-trade system is the most common of these schemes and involves governments issuing permits to businesses for specific emissions limits. Participants are then free to trade these permits, creating an emissions market which is based on the differing marginal costs for different companies when it comes to reducing emissions, increasing energy efficiency or considering alternative energy sources. Thus, if one participant has a high marginal cost for mitigation measures, while another has a lower cost, then there exists a market for trade. The participant with low marginal mitigation costs can sell a permit for a price above this, still reduce its emissions and make a profit. If this permit purchase price is below the marginal mitigation costs of the buyer, then this is a profitable trade for the buyer as well [F|ischer pp 1]. The realisation of greenhouse gas emissions is that they have the same effect regardless of geographic location and as a result, emissions trading may seem like a more favourable market tool for climate change mitigation compared to other options.
Climate change is an issue for which policy needs to be concerned with ensuring that any immediate action is concerned with ensuring long-term stability. This can only be achieved by ensuring that the mitigation or adaption techniques are economically feasible in the long-term and that the global market is able to sustain a complete overhaul of capital stock to embody new technologies and energy markets [schlenifer pp 329]. As a result, the long-term nature of economic solutions such as carbon taxation and emissions trading seems to be one if the most suitable intergrated strategies for tackling the issue of climate change by developing viable market conditions for emission control.
Renewable and Clean Carbon Technologies:
Global economic development has always been closely linked with global energy development and with most of the world's commercial energy supplies continuing to be provided by fossil fuel resources there is a real need to look at balancing the economics of energy consumption. Energy use efficiency needs to be increased to moderate the growth of energy while contribution from clean energy sources needs to be increased to reduce the adverse environmental impacts of energy consumption. Despite the many uncertainties about the impact of technological change on mitigations costs, there is wide agreement that technological innovation is an important condition to foster the needed de-carbonization of the economy [Botte pp 279]. One of the potential measures in technological advancement, that may help to meet the climate change challenge are Renewable Energy Technologies [RET's] [Painily pp 2].
In looking at developing clean-fuel technologies in the carbon industry itself, CO2 capture and storage remains a feasible option for short to mid-term carbon emissions management and remains an important low carbon technology, because it allows the continuation of using fossil fuels while reducing the corresponding CO2 emissions [Bossetti pp 271].
In developing countries much investment is still being directed towards conventional energy sources and technologies despite the commercially available RETs. Barriers of unfavourable economic conditions need to be identified and addressed to effectively design new innovative policy approaches for the international and domestic financing of RETs as we continue to see the emergence of a paradoxical situations of energy shortages despite an abundance of renewable energy sources [Painuly pp3].
Conclusions:
The global nature of climate change continues to inhibit effective solutions and mechanisms of control. Energy markets that are either monopolistic or oligopolistic and distorted by subsidies are fuelled by global actors who are able to operate within a legally defined framework of international institutions. Though global commitment is important, command and control alone will not solve the problem of climate change - indeed many analysts have considered that it may well have reached the limits of its environmental effectiveness [Grant pp 11]. What is needed are policy decisions that encourage market conditions beneficial to mitigation measures - achieved by encouraging industrial involvement and making increased provisions for renewable technologies in developing nations. Practical strategic reasoning over long-time frames will encourage our economic structures to look at combining long-term climate management and economic potential through climate control technologies [Bosetti pp 271]. Though this idea of an integrated regulatory structure based on both international agreement and regional implementation is a useful working description of what is desired, like motherhood and virtue, it is not easy to define; and there are various ways to get there as International agreements, whether advisory or legally binding, continue to divide public and political opinion, and are similarly divided in terms of their effectiveness [Boyle, E.A [1994] Environmental Regulation and Economic Growth; pp 6, 101]1.
