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Global Warming – the greatest market failure

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Yvonne Cheng

on 5 December 2012

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Transcript of Global Warming – the greatest market failure

Why is it a market failure?
What are its externalities?
What can the government do? Market Failure - economic inefficiency
- resources are not
allocated efficiently Global Warming – the greatest market failure Externalities - The costs or benefits imposed on 3rd parties
- Price and profits do not accurately reflect
true social costs or benefits in economic decisions
- Externalities lead to market failure
- Positive externalities (external benefit)
- Negative externalities (external cost) Negative Externalities:
-Carbon dioxide
-Nitrous oxide
-Methane
-Increase in medical costs
-Pollution from transport
-Water pollution
-Refrigerating
-Deforestation Animal Agricultural for agricultural uses
China's tropical rainforests decline 67% in 30 years
Food and Agriculture Organization (FAO) estimated tropical deforestation (of the rain forest and other tropical forests) at 53,000 square miles per year
each year an area of tropical forest large enough to cover North Carolina is deforested. Deforestation These factors are the negative externalities
of production which increase
the rate of global warming Massachusetts Institute of Technology (MIT) – “Climate change is the greatest market failure the world has ever seen… the costs will be equivalent to losing 5% (potentially as much as 20%) of global GDP each year, now and forever.” Externalities caused by global warming -Coral Reef (Great Barrier Reef)
-Global warming leading to increase in the temperature of the sea
-Over half of the coral in the Great Barrier Reef died
-World Wildlife Fund (WWF) warns that coral reef in south-east Asia may disappear by end of the century -Antarctica runway melting
-Australia is searching for a new aircraft landing site in Antarctica because the current runway is melting due to global warming
-http://www.bbc.co.uk/news/world-20092215
-Hurricane
-Extreme climate due to global warming Externalities
caused by global warming Government intervention:
-Tax
-Negotiation
-Subsidy
-Education
-Regulation
-Permits to pollute Q2 Q1 P1 P2 0 unit tax quantity price D S1 S2 Tax on firms’ emission of green house gases Unit Tax Imposed on rubbish bag Value-Added Tax (VAT) -Set a limit of green house gas emissions with other countries
-BUT
-The US is more powerful
-They refused to join until Obama inaugurated Negotiation –
Kyoto Protocol Encourage environmental organisations

Encourage them to develop alternative energy sources
Promote green lifestyle Subsidy Encourage recycling companies

High recycling costs
More willing to enter recycling industry Subsidy Provide financial encouragement for citizens to recycle Subsidy Advertisements
Increase citizens’ awareness of global warming
Suggest solutions of what citizens can do to alleviate this problem
Teach citizens to recycle (e.g. Taiwan) Education The UK sends around 5 million tones of packaging waste to landfill each year
Complain about packaging
Help monitor on packaging of products
When the government receives a certain amount of complaints, the firms would be warned
If there is an increase of complaints, the firm would be fined Education
e.g. excess packaging Education
e.g. excess packaging Prepare a container when you buy take-aways
Buy products with less packaging or buy refills The Packaging (Essential Requirements) Regulations
Set a maximum level that a firm can pollute, if the firms’ emission of green house pollutants has exceeded, the government can fine them Regulation Government can sell “permits to pollute”, which is transferable
Creates incentives for firms to minimise their pollution, as they can sell their unused quota of permits to pollute to other firms, which can be their bonus profit Permits to pollute The end Negative externalities Solutions
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