Summary and Final Tasks

Summary

If we decide to take action to reduce climate change by altering our energy system, many options exist for policies. As with any issue, it is possible to pass laws that fail to reach their goals on climate and energy. However, much scholarship shows that the policy actions available on this topic include efficient options that will improve the economy.

Governments could enact regulations reducing or outlawing some fossil-fuel emissions. Or, governments could choose to send a “price signal”, making it more expensive for people to do things that change the climate.

The most commonly discussed price-signal policies involve cap and trade, or carbon taxes. Under cap and trade, a government legally limits the amount of CO₂ or other greenhouse gases that can be emitted, selling (or giving away) permits for such emissions; the permits then can be traded or sold, allowing the market to reduce greenhouse-gas emissions as efficiently as possible. The most commonly discussed form of a carbon tax would simply tax the amount of carbon in a fossil fuel when it is extracted from the ground or imported to a country.

You can find a wide diversity of opinions on all aspects of this. Overall, economists seem to prefer the efficiency of price signals over regulations, and prefer the simplicity of a carbon tax over cap and trade, although in the broadest sense cap and trade can be viewed as a sort of carbon tax.

If a price signal is used, the effect on the economy depends very strongly on how the money raised is then spent. A tax swap that reduces taxes on things we like (wages, for example) would cause the impact of a carbon tax on the economy to be small, with the possibility that the tax would actually accelerate economic growth a little, even if you ignore the benefits of avoiding climate change; including those benefits in the calculation makes a carbon tax with tax swap more beneficial to the economy.

Carbon taxes can be harmonized across countries to gain international cooperation. The trade system might be used. For example, suppose that some countries decided not to tax their carbon. Other countries might convince these nonparticipants to change their minds and cooperate by offering the nonparticipants a choice: Tax your own carbon and keep the money in your own country to do good things, or have the participating countries keep the money from a tax on all trade with the nonparticipants.

If we go to the effort of developing and implementing efficient policies to deal with climate change, there are likely to be many related benefits, including greater national security, reduction in economic recessions caused by oil price swings, reduction in unintended damages from the energy system, and perhaps increased employment.

However, the available scholarship suggests that the current policy position for the world as a whole, and for many or most countries, is serving to accelerate rather than to reduce climate change and that this has been true over the previous decades. “Business as usual” then is not neutral on this topic, but serves to accelerate fossil fuel use and climate change.

Reminder - Complete all of the Module 11 tasks!

You have reached the end of Module 11! Double-check the to-do list in the Module Roadmap to make sure you have completed all of the activities listed there before you begin Module 12.