Climate change. Methods to internalize externalities

Table of Contents

1 Introduction

2 Climate Change

2.1 Global warming

2.2 Greenhouse gases

2.3 Atmospheric carbon dioxide

2.4 Current and prospective future impacts and risks

3 Externalities

3.1 Externalities in the context of greenhouse gases

3.2 Market failure

3.3 Internalization of external effects

3.4 Public goods

4 Long-term policy problem

4.1 Free riders

4.2 Time inconsistency

4.3 Domestic politics problem

4.4 Interrelation

5 Economic instruments of environmental policy

5.1 Coase Theorem

5.2 Regulatory instruments

5.3 Market-based instruments

5.3.1 Pigouvian tax

5.3.2 Comparison of a regulatory instrument and the Pigouvian tax

5.3.3 Socially optimal level of pollution and the Pigouvian tax level

5.3.4 Deviation from the optimal tax level and the resulting welfare impact

5.3.5 Case study – Carbon tax in Switzerland

5.3.6 Tradeable property rights

5.3.7 Comparison between a carbon tax and tradable property rights

6 Global perspective

6.1 Addressing the long-term policy problem

6.2 Global coverage of emissions under a single carbon price

6.3 Implications related to partial implementation of carbon pricing

6.4 Global collaboration to increase responsible action

7 Conclusion and Discussion

7.1 Conclusion

7.2 Discussion

Research Objectives and Themes

The thesis aims to investigate why there is a lack of sufficient action to mitigate climate change, identifies the most efficient economic instruments to internalize greenhouse gas externalities, and examines the global policy challenges associated with climate change mitigation.

• The socioeconomic drivers and barriers to climate change mitigation.
• Economic mechanisms for internalizing negative environmental externalities.
• Theoretical and practical comparison of regulatory versus market-based instruments.
• Analysis of the long-term policy problem and global collaboration needs.

Excerpt from the Book

Summary of Chapters

1 Introduction: Introduces the urgency of the climate crisis, the scientific consensus, and establishes the core research questions regarding mitigation efforts and policy efficiency.

2 Climate Change: Provides scientific background on global warming, the role of greenhouse gases, and current/future environmental risks.

3 Externalities: Explores the economic concept of market failures and the theoretical necessity of internalizing environmental impacts.

4 Long-term policy problem: Examines systemic challenges like free-riding, time-inconsistency, and domestic political pressures that hinder effective climate action.

5 Economic instruments of environmental policy: Analyzes and compares regulatory and market-based instruments (taxes vs. trading) for effective pollution control.

6 Global perspective: Discusses the necessity of global collaboration and the complexities of implementing unified carbon pricing across different economic systems.

7 Conclusion and Discussion: Synthesizes the findings, confirming the effectiveness of market-based instruments while noting the need for ongoing model refinement.

Keywords

Climate Change, Greenhouse Gases, Externalities, Market Failure, Pigouvian Tax, Tradable Property Rights, Carbon Pricing, Policy Mitigation, Long-term Policy Problem, Global Warming, Emissions Trading, Environmental Economics, Socially Optimal Level, Sustainability, Carbon Leakage.

Frequently Asked Questions

What is the primary focus of this thesis?

The thesis focuses on the economic challenges and policy solutions related to climate change mitigation, specifically exploring how to internalize the negative externalities of greenhouse gas emissions.

What are the core themes addressed?

The core themes include scientific evidence of climate change, the nature of environmental externalities, the "long-term policy problem," and the evaluation of various economic instruments such as carbon taxes and emission trading systems.

What is the main research question of the work?

The research is driven by two main questions: why is there insufficient global effort to mitigate climate change, and what are the most cost-effective and efficient methods to achieve such mitigation?

Which economic methodologies are applied in the analysis?

The study utilizes welfare economics and policy analysis, comparing regulatory standards with market-based approaches like the Pigouvian tax and Cap-and-Trade systems to address externalities.

What does the main body of the work cover?

The main body covers theoretical frameworks (Coase Theorem, market failure), specific policy instruments, empirical comparisons of international carbon tax and trading systems, and the global political challenges of cooperation.

What are the key terms that define this research?

Key terms include externalities, carbon pricing, market failure, free-rider problem, Pigouvian tax, tradable property rights, and long-term policy problem.

What is the role of the "long-term policy problem" in the thesis?

The long-term policy problem describes three interrelated challenges (free-riding, time-inconsistency, and domestic politics) that make the implementation of ambitious, multi-generational climate policies extremely difficult.

What are the findings regarding the Swiss CO2 tax case study?

The case study shows that a carbon tax can be effective and socially acceptable when revenue is partially refunded to the population, thereby offsetting negative distributional impacts on lower-income households.