Environmental Economics

Environmental Economics and Climate Change

The focal problem Dr. Joseph Stiglitz identifies in this 2011 posted video is around greenhouse gas increases. Rising greenhouse gasses are leading to increased temperatures and rising sea-levels across the globe (Stiglitz 2011, 2:00). These shared global impacts create interdependency issues between countries that are more difficult to solve since there are large differences between advanced and developing countries (Stiglitz 2011, 0:15). The variety of sources of this pollution also adds further complexity to the issue of greenhouse gases (Stiglitz 2011, 17:20).

To better understand these problems and to help identify potential solutions, Dr. Stiglitz utilized a few different frameworks. Since the atmosphere is a common good, it suffers from the “tragedy of the commons” where shared resources are degraded due to actions of self-interest by users (Stiglitz 2011, 7:04). This framework around shared resources also ties into the concept that there is a social cost to carbon. Since pollution is an externality, or cost imposed on others, if you make people pay for that cost you can correct for the failure of the market (Stiglitz 2011, 30:49). Adding to that framework, he adds that incentives can help shift behavior towards cleaner solutions and away from more polluting options (Stiglitz 2011, 31:15).

To implement social costs of carbon and incentives to reduce degradation of shared resources, Stiglitz proposes a few different solutions. The primary solution would be a carbon market where people are given pollution allowances and they can sell them if they are under their limit or buy them if they are over their limit (Stiglitz 2011, 22:50). A carbon market would help rectify the hidden subsidies that large advanced nations are able to take advantage of to gain unfair advantage over smaller countries (Stiglitz 2011, 27:00). This system would also allow developing countries to have proper evaluation, both financially and environmentally, of their forest resources to ensure they are able to develop efficiently. To properly identify measures of success of growth for advanced and developing countries, he also puts forth the concept of a Green GDP that takes into account additional items like living standards, health, and degradation to the environment (Stiglitz 2011, 36:15).

However, a carbon market and success measurement methods still face challenges. While all countries would benefit from these solutions, industries like oil, coal, and car companies would not benefit and so these special interests will fight to keep regulations where they are (Stiglitz 2011, 34:30). This leads to the issue where the large polluting advanced economies that are supported by these industries, like the USA, are not committing to comprehensive GHG solutions. Since these issues are global and interdependent, it is difficult to not only get different countries to agree, but it becomes increasingly difficult to enforce the agreements as well so sanctions should be put into place (Stiglitz 2011, 24:32).

The 2015 Paris Agreement made some progress in resolving the issues of developing targets separately for advanced economies versus developing nations (Wikipedia 2020). However, the USA has still refused to participate, leading to continued issues around the role advanced economies play in the issue and providing an example for other developing countries like Brazil to also avoid any commitments. The primary issue of enforcement remains unsolved as well. Instead of creating optional participation programs, it would be much better if world leaders developed a social carbon market and utilized a Green GDP measurement and sanctions to enforce and manage global greenhouse gas emissions.

Author: Logan Callen


Stiglitz, Joseph. 2011. https://www.youtube.com/watch?v=ykW8zP1di5Q

Wikipedia. 2020. “Paris Agreement.” Accessed June 16, 2020. https://en.wikipedia.org/wiki/Paris_Agreement

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