How Free-Market Innovation Is Our Best Defense Against Climate Change
Article Written by Jett James Pruitt
Have you ever wondered why calculators are the only solar-powered products used on a daily basis in the United States? Invented by the Sharp Corporation in 1976, the EL-8026 "Sun Man" was the first calculator to install solar cells on the device.
So, what is it about this small invention that did not threaten any major industries and quietly slipped through the gates to become a ubiquitous part of our daily lives?
More importantly, why don't we have more "common sense" products of this nature?
Truth is, soon we will.
As climate change serves as an existential threat to humanity, many public figures advocate for more government control of economic resources to reduce greenhouse gas emissions in an effort to reverse course.
As explained by the National Aeronautics and Space Administration (NASA), greenhouse gases—such as carbon dioxide—trap heat within Earth’s atmosphere. Since global temperatures have rapidly increased since the end of the nineteenth century, the majority of governments claim to be dedicated to reducing global greenhouse gas emissions, yet critics claim their actions are lacking.
While most industrialized nations have implemented progressive climate strategies, several conservative leaders believe that a government overhaul of the fossil fuel system will destroy the world economy without addressing the fundamental causes of climate change.
For example, in the United States, President Joe Biden has promised to enact progressive climate policies that some suggest will stymie the American economy. For this reason, it is important that countries consider implementing market-oriented solutions to persuade hesitant voters to support certain initiatives.
Once this is accomplished, countries can install the necessary technological framework to mitigate the adverse effects of climate change. Therefore, governments should enact market-oriented solutions to mitigate the effects of climate change because doing so will effectively address the climate crisis, benefit the global economy, and allow governments to install vital technology within their respective nations.
To begin with, market-based solutions will effectively address the climate crisis. As the entire global economy depends on the consumption of fossil fuels, it may be necessary to financially incentivize companies to expand their operations into renewable energy. This can be accomplished by several methods, including instituting a carbon-neutral tax.
Under this proposal, governments would charge companies for every ton of carbon dioxide they emit. However, instead of using that revenue for public expenditures, governments would rebate it back to the people as a tax cut or check.
Many individuals, who are concerned with both preserving the environment and scaling back government interference, are open to this idea. In addition, not only has this initiative gained widespread support in virtually all nations, it has proven to be effective in reducing greenhouse gas emissions.
According to the World Bank, over 40 nations have implemented some sort of carbon tax, including Argentina, Sweden, and the United Kingdom. Especially in Sweden, which levies the highest carbon tax rate in the world, national greenhouse gas emissions have been shown to decrease after companies expand into renewable energy.
Climate Activist, Greta Thunberg
In fact, the globally respected Environmental Performance Index—produced by Columbia and Yale universities—places Sweden in the top ten countries with the best environmental performances. So, as quantitative evidence suggests, free market solutions are generally effective in reducing greenhouse gas emissions.
Yet despite this, while several economies have thrived under this system, some progressive political figures believe that market-oriented solutions will not go far enough in combatting the climate crisis. Essentially, they argue that fossil-fuel based companies receive far too many government benefits to want to become ecologically sustainable.
For this reason, some individuals point out that nations only reduce greenhouse gas emissions when governments actively regulate certain fossil fuel-based industries, such as coal, oil, or gas. However, as demonstrated by the successes of Sweden—which has a mixed economy of government regulation and free-market innovation:
Common sense regulations are not mutually exclusive with private sector solutions.
Moreover, it is incorrect to assume that companies are unwilling to adapt to market forces. If this were the case, food companies would not sell gluten-free products to customers in response to the emerging diet trend around the world.
While it may be true that oil companies completely rely on fossil fuels but food companies do not entirely rely on flour-based products, the same concept is applied to both scenarios; private sector organizations can adapt to changing market patterns.
Therefore, it is critical that governments financially incentivize corporations to reduce their carbon footprint.
Elaborating on the aforementioned arguments, market-oriented solutions will benefit the global economy.
As explained by Richard S. J. Tol, a professor of economics at the University of Sussex, the impact of global warming encompasses a variety of sectors that are indirectly influenced by the climate crisis.
For this reason, many world leaders are interested in introducing emissions trading into their respective economies. Essentially, under this system, the government sets a cap on the maximum level of emissions a company is allowed to produce. Then, an administrative agency establishes permits for each unit of carbon emissions allowed under the cap.
Many economists view emissions trading as a cost-effective way of reducing greenhouse gas emissions, and it has been developed to reduce pollution while avoiding economic disruption. The best example of emissions trading being effective in combatting climate change is Germany.
According to Germany’s publicly-funded news agency, Deutsche Welle, the nation’s Environment Ministry recently reported that the country reduced its carbon emissions by 6.3% in 2019. As recent economic data indicates, the German economy has thrived under the emissions trading system.
On the contrary, government-controlled countries such as China have displayed more efficiency when it comes to addressing nationwide emergencies. Although not directly related to climate change, China’s impressive display of a quick and thorough response to the global pandemic of Covid-19 showcased a total disregard for economic interests and more efficacy in government-controlled solutions, than say, free-market countries like Italy who delayed action in light of tourism and continue to be plagued by spikes in Coronavirus cases.
Others would argue that in this case, free-market solutions did not have enough time for implementation, but with the climate crisis, the timeline for action is generally agreed upon to be ten to twelve years as per the IPCC. Therefore, many individuals believe that, just like the Coronavirus pandemic, climate change should be primarily addressed by strict government policies.
However, what many have failed to realize is that there are a variety of social, political, and economic factors that determine how well a country responds to a pandemic. In essence, comparing climate change to Covid-19 is not an equal comparison. For this reason, with emissions trading serving as a prime example, other nations should concentrate on implementing market-oriented solutions to aggressively combat the climate crisis without disrupting economic growth.
Weaved in with the economic effects of climate change, implementing market-oriented solutions will allow governments to install vital technology within their respective nations.
Mark Carney—who recently served as Governor of the Bank of England—argued that for markets to become ecologically sustainable, governments need to provide companies with the right information, proper risk management, and credible policy guidelines.
Essentially, if companies understand the financial risks associated with climate change, they will reassess their business models and become ecologically sustainable. In addition to implementing these methods, some policymakers subscribe to the view that offering tax benefits will incentivize companies to expand their operations into renewable energy.
This claim is substantiated by professors at Columbia University, who recently found that clean-energy tax incentives have succeeded in promoting the development of wind and solar technology in the United States.
So, as evidence indicates, a hybrid approach of free market innovation under government direction has been successful in promoting the development of clean, renewable technology over the past few decades.
However, as evidenced by the under-utilized $2,500-$7,500 electric vehicle tax rebates implemented in the United States in 2010, some would argue that clean energy tax incentives have done very little to decrease the carbon footprint.
In essence, this perspective is flawed.
A primary reason for a lack of worldwide adaptation of electric cars is because global oil companies have not transitioned enough gas or petrol stations around the world into electric car recharging stations. In addition, international automobile manufacturers continue to build fuel-based vehicles without punitive actions or financial incentives to build more electric-based cars.
More importantly, consumers see no long-term economic reasons to purchase environmentally friendly vehicles.
But if public sentiment continues to shift towards individual responsibility in reversing the oncoming climate catastrophe, manufacturers would identify profit opportunities and change focus.
For this reason, market-oriented solutions should be implemented because doing so will allow nations to install the necessary technology needed to combat the climate crisis.
For clarification, free-market solutions are meant to compliment and support, rather than replace, government regulations in addressing climate change. It is important that government direction is involved to ensure the private sector can properly adapt to changing market patterns. Moreover, it is important to acknowledge that there can be some discrepancies in market-oriented policies.
Yes, some companies will not voluntarily expand into renewable energy. Yes, some executives will continue to reject the scientific consensus on the existence of climate change. Yes, some form of government regulation is necessary to combat the climate crisis.
But while all of these points are valid concerns, there is overwhelming evidence to suggest that free-market solutions do work in mitigating the effects of climate change. Proposals such as instituting a carbon-neutral tax, implementing emissions trading, or providing clean-energy tax credits has generally helped nations around the world significantly reduce greenhouse gas emissions.
For this reason, a hybrid approach of free market innovation and government regulation is necessary to save humanity in the long run.
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