Tuesday, December 8, 2009

Policies to Reduce Global Warming

Global warming is one of the hottest topics at the moment. The problems of Global warming are potentially devastating. But, as expected there are many ready to tell us global warming is a hoax and policies to tackle the problem will lead to unemployment, lower output and could damage the economic recovery.

Whatever, your opinion about the reality of global warming, I feel that there are many policies to reduce global warming which will not damage the economy but can actually benefit it.

Tax on Carbon.

Taxing carbon emissions provides firms with incentives to create more efficient industries. It creates incentives to switch to carbon-free production. It may cause temporary unemployment amongst industries who are carbon intensive. (these are the groups lobbying hard to protect against any carbon taxes and coincidently often find evidence global warming is a hoax e.t.c). But, the overall effect on the economy and unemployment should be neutral. Jobs will be created in technology and industries which promote low-carbon emissions. Tax rises in carbon can lead to lower taxes on other environmentally friendly industries. Alternatively, the tax revenue can be used to subsidise the development of solar power technology e.t.c

Carbon taxes should not be seen as a revenue raising / deflationary fiscal policy. It is merely an efficient way to encourage a more environmentally friendly economy. It is merely switching the tax burden, placing tax on those activities which cause most harm to society and the environment.

When London was covered in smog in the 1950s, legislation stopped open fires. Undoubtedly some jobs were lost in the open fire/coal industry, but, jobs were created in the alternative such as gas and electric fires. We managed to reduce smog without a permanent rise in unemployment and permanent fall in GDP. I think most people would argue the government intervention to reduce smog improved living standards and improved the environment.

It is the same story with acid rain. In the early 1980s, we became aware of the damage done by acid rain. The usual suspects fought against tax and regulation to limit the creation of pollution, but, in 1990 the United States went ahead with a cap-and-trade system for sulphur dioxide. It did not lead to a loss of output, but, helped reduce sulphur pollution at limited cost. (an affordable cost)

The economy is adaptable. The idea we have to maintain existing industries at all cost to protect jobs and prevent a decline in output is absurd. Should we have kept slavery to protect jobs in the Liverpool docks? Should we have subsidised the coal industry to keep 0.5 million miners producing coal that nobody wanted anymore?

The truth is that we can reduce global warming without economic damage. The problem is that it might hurt some vested interests temporarily - so they fight tooth and nail to protect their industry - ignoring the wider implications.

Even if the threat of global warming turned out to be less real than the most pessimistic forecasts, we will have lost nothing by promoting more eco-friendly industries. Yet, if we do nothing and global warming does lead to rising temperatures and sea levels the effects could be catastrophic. As the Stern report [link] suggests - there could be a huge economic benefit to tackling global warming. Voters don't like the idea of 'new taxes'. They have to be sold how much they stand to gain from a more efficient tax system.

Hopefully, common sense will prevail and we will not gamble on the future of the world for the sake of a few leaked emails and the vested interests of a few multinationals. - well just my vain hope anyway.

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