Carbon Pricing, Alternative Worlds Economics Views - Essay Example

Carbon pricing Carbon pricing is a generic term used to place a price tag on carbon through a variety of strategies such as subsidies, carbon tax, or emissions trading system - also referred to as a cap-and-trade system. Essentially, the pricing for goods and services should include their full benefits in terms of economic, social and environmental. As regards the carbon price, the value of goods and services reflects the impact of carbon dioxide emissions from the service or product on the environment. Establishing a carbon price is inarguably one of the most robust mechanisms available to lower national green house gas emissions. The carbon price is usually delivered through legislation, which imposes a cost, or places an opportunity value on the release of greenhouse gas into the atmosphere. Hence, it is important to take into consideration the carbon tax (price set by the government and which is periodically reviewed, emission trading (the emissions target set by the government) and the direct action (technical responses by government as funded by all tax payers). The aim of carbon pricing is to produce a change in the economy, whereby the market starts to differentiate between goods and services based on their carbon footprints. The carbon footprint of a product or service refers to the net change in global carbon emissions as a result of the production and use of that product or service. In its generic realisation, the carbon price, which is initially experienced by the emitter or fuel provider (such as by paying tax, through tax allowances from the government or implementing a required project) is eventually passed through to the consumers of the product. Therefore, the result is that there is a relative change in cost of most goods and services based on their carbon footprint, as well as the emergence of a new cost taking within the economy. This will influence the purchasing decisions of consumers. Thus, goods and services produced under business as usual conditions are likely to be shunned by many consumers as more and more of them shift their attention to goods and services produced under efforts to reduce the carbon footprint. Products with a high carbon footprint are likely to be less competitive, either compelling their withdrawal from the market, or forcing manufacturers to invest in projects that lower the footprint. The expectation or theory of carbon pricing is that carbon pricing from various measures such as carbon tax or a cap-and-trade system will lead to investments into technologies or activities that reduce emission compared to business as usual. It is however important to ensure that the technologies employed have a significant environmental outcome (as this is the essence of lowering the carbon footprint), are cost effective and receive wide political acceptability. Reducing the carbon footprint can take place both at the household level and enterprise level. At the household level, individuals can engage in actions to conserve the environment such as having energy-efficient appliances, and having house designs that are environmentally friendly. At the enterprise level, businesses can invest in conservation efforts, produce products and services that help others improve, and engage in fuel efficient operations such as fuel offsets. Degrowth Degrowth is a term used by economists to refer to economic downscaling. Supporters of degrowth denounce economic thinking as well as systems that view growth as holding the promise of a better world and solving its social and environmental problems. This can be likened to the way radical environmentalists perceive the environment – they are of the opinion that growth and consumption are unsustainable. The reasoning behind degrowth is supported by the viewpoint that there are no economic ends, and as such, there are only economic problems involved in the achievement of ends. Proponents of degrowth argue that whereas economic activity is aimed at the satisfaction of wants or improving welfare, welfare is not a quantity that can be measured directly from the outside; as it is a category of individual experience. Further, there are a number of welfare-influencing factors related to production, including the packaging of goods or services produced, time, scarce environmental functions, distribution of scarce goods, employment versus unemployment, the conditions under which goods or services are produced, and future security as regards people’s dealings with scarce goods and the vital functions of the environment. As such, it can be noted that measures of production such as GNP only take into account the production and sale of commodified goods and services, while ignoring the damaging effect that production has on other social and economic goods such as justice, democracy, equality, social relations, health of humans and ecosystems. Proponents of degrowth argue that economic growth and the increase in material wealth can only be sought at the expense these other more qualitative sources of wealth. As environmental functions have become scarce goods with respect to production, proponents of degrowth argue that holding all other factors constant, more production implies less environment and vice versa. As such, when preference is given to the environment over production and a government imposes controls on production processes and consumption habits that lead to a smaller volume of services and goods produced, there will be an increase in overall satisfaction of wants obtained through scarce goods. Therefore, it is perceived that a decrease in production will lead to an enhanced welfare. Advocates of degrowth not only oppose the neoliberal policies that support growth, but also argue against the notion of sustainable development. By sustainable development is meant the reconciling of growth with the earth’s natural capacities by adopting more ecologically efficient technologies (such as recycling and use of renewables). However, advocates of degrowth point out that the reduction in ecological damage achieved by the use of sustainable technologies is more than offset by the increase in production they generate. Hence, the solution is not to make growth greener or more socially equitable but rather to challenge the very idea of growth – that is to produce less and consume less, especially in the North. Economic degrowth is not a goal in itself, but can be viewed as a goal of making the world’s industrialised countries especially in the North to spearhead efforts toward a globally equitable steady-state. The point is that governments of developed countries should no longer pursue economic growth as a fundamental policy – but this can only be regarded as heresy. Alternative world’s economics views It is important to have alternative perspectives as regards economics, and importantly to ensure sustainability. Sustainability implies that there is a balance in terms of production in that as a result of production, there is an improvement in the economy and that social and environmental issues are also taken care of. It is important for instance, to pay attention to how production affects indigenous people in terms of their social and environmental issues. Dealing with indigenous communities requires an understanding of their socio-economic systems. To begin with, as pertains to dealing with indigenous communities, economic activities revolve around “nature-cultures” rather “than socio-economic systems.” For instance, relationships with landscapes are based on reciprocity (that is mutual obligation). But whereas having healthy ecological systems is an essential issue, it is often downplayed. In addition, as regards the indigenous communities, the idea of reciprocal responsibilities is not similar to what common western environmentalist ideas say about protecting nature by limiting its exploitation. Another aspect that pertains to production amongst the indigenous communities is social responsibility. It is important to not only maintain the integrity of ecosystems where production is being done, but also maintain the capacity of the environment to provide for the needs of the community. This reinforces the idea of reciprocity. It is also important to be mindful of the impacts of human behaviour on environments by promoting sustainable use of resources. Hence, whereas there may be a large-scale production activity such as mining in a rural area, it is worthwhile to promote other activities such as hunter-gathering and subsistence agriculture by the local communities. This requires careful application of regulation on resource use, as well as enhancing a close relationship between daily lives in the real world; rather than having abstract notions of market relations and the self interested individual as is often characteristic of western economics. In this context therefore, the value of goods, for instance, is based on what is available and what s required, rather than maximising profits. It is important to understand the various aspects of indigenous communities as this determines how to interact with them. For instance, indigenous Australians have a number of distinct attributes. First, they follow the same economic imperatives to succeed as individuals on their own merit and under their own efforts. It would therefore be misleading to reject mainstream economics outright when dealing with them. Second, indigenous Australians try to live lives separate from mainstream social and economic systems. But this is only possible where there is little ecological destruction and interruption of the local communities’ activities as a result of mainstream economic activities. Third, there are indigenous Australians who pursue economic integration and at the same time maintain some degree of social and cultural isolation. It is thus important to ensure that these aspects are balanced. Great Depression and Global Economic Crisis The Great Depression was a severe worldwide economic debacle in the decade preceding the World War II. Although the downturn was mild in some countries, it was harsh in others, especially in the United States. Prior to the Great Depression, most economists thought that markets were capable of directing an economy back to its long-run potential rather quickly. It was also thought that prolonged recessionary conditions were an impossibility. But the Great Depression changed all these points of view. With it came the need for greater control of financial markets. Some of the regulations implemented are still in place, and understanding them helps to frame approaches to dealing with subsequent economic crises. The United States was severely affected by the Greta Depression. Between 1930 and 1933, the real GDP of the United States fell by more than 30 percent and by 1933 nearly 25 percent of the country’s labour force was unemployed. As such, industrial production decreased by half and national income also declined by the same margin. Further, long term lending declined beginning 1929 and collapsed in 1932. Across the world, the economies of those countries that relied on a steady flow of the United States capital were destroyed. This included virtually all countries in central Europe. As the United States purchasing power declined, economic recovery in Europe was further eroded. The approach to dealing with the Great Depression was Keynesian economics, which has been applicable even in dealing with the recent global economic crisis. The Keynesian theory provided an explanation that spending motivated firms to supply goods and services; and if spending declined, for instance if consumers became pessimistic about the future or tried to save more of their current income for the future – then firms would respond by reducing production. But less spending ultimately leads to less output. This was a key reason for the persistence of the Great Depression. The Keynesian theory caused a revolution in economic thinking, overturning the older ideas of neoclassical economics that held that free markets would automatically offer full employment as long as workers were flexible in their wage demands. Followers of Keynes argued that wages and prices are highly inflexible, particularly in a downward direction. Further, large corporations would be able to maintain their wage and prices high, and even if wages did come down, this would reduce incomes and thus lower demand and spending. Even though the significance of the theory by Keynes waned in the 1970s, the theory was a major factor in dealing with the recent global economic crisis. For instance, Keynesian economics provided the theoretical underpinning for the plans of the President of the United States and the Prime Minister of the United Kingdom and other global leaders in easing the 2008-2009 global economic recession. Ideally, both the Great Depression and the recent global economic crisis were characterised by low spending and pessimism about the future - which the Keynesian theory seeks to correct. Read More