Climate change is a serious threat to our planet’s natural resources and our way of life. In order to maintain the health of our environment, it is essential for countries, companies, organizations and individuals across the world to work together to protect our planet. There have been a variety of initiatives tried to combat climate change, but one of the most popular approaches may be less effective than many think.
The 1997 Kyoto Protocol has guided much of the world’s efforts to reduce or reverse climate change over the past decade and a half.. One of the key components of the Kyoto Protocol is a market of tradeable carbon permits. This approach essentially makes the right to pollute and the right to be free from pollution commodities that can be traded in markets.
This system works by setting a cap or limit on how much of a particular pollutant may be released during the current year. The central organization then issues or sells permits to allow entities to release their share of that pollutant. Entities are required to have these permits in order to pollute. In theory this incentivizes polluters to pollute less, since they will have to buy fewer permits if they pollute less.
Is this approach working?
Critics point out that tradable carbon permits are essentially an economic solution to what is a social problem. The question is, can economics really solve such a problem?
After nearly two decades, we can ask the question – has this approach been economically efficient and environmentally effective? It seems not.
Yet another popular solution, carbon taxes, has not been very effective either. Only Denmark has been successful in achieving significant reductions in emissions via carbon taxes. Why? It seems that producers/polluters simply pass the added costs along to consumers. In other words, the carbon taxes just become another cost of doing business and the end prices to consumers are increased accordingly.
What about regulations?
Experience shows that a third approach, regulation, may be more effective. The Montreal Protocol on Substances that Depletes the Ozone Layer was an international agreement to regulate and reduce man-made chemicals that damage the ozone layer, especially chlorofluorocarbons (CFC’s). Since 1987, all countries have signed the agreement and CFC levels in the atmosphere have declined.
Tradeable carbon credits have simply not been effective at protecting the environment, yet they still remain a popular option. Part of the reason they remain popular is corporations and politicians prioritizing economic growth. Since economic growth drives prosperity for voters, there is political weight to protect the economy, even at the expense of the environment.
Since a market-based approach is not working, it has become apparent that it is time to implement a regulatory approach for decreasing emissions.
About The Author:
Paul Scanlon, CEO of Prime Capital, is a seasoned financial expert and is currently completing a Masters in Political Economy at Sydney University. You can connect with Paul on Facebook, LinkedIn, and Tumblr.