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2010-12-16

Consistency in argument and market efficiency

Comments on John Daley and Tristan Edis “Market best to reduce carbon”, 16/12/2010, http://www.theaustralian.com.au/news/opinion/market-best-to-reduce-carbon/story-e6frg6zo-1225971753541

While the argument of using a market approach is correct, some of the arguments are problematic.

Firstly, there are market failures and the emissions issue in terms of climate change is such a typical example.

Secondly, it seems the second point in the suggested policy design may have been based on a linear assumption or projection of the effects of emissions, that is, any emissions of greenhouse gases are universally bad, and the best is no emissions at all. That is likely to be speculation and lacks scientific evidence.

Further, the advocate of a price floor is highly questionable. If the objective of dealing with climate change is achieved, then why is there a need for a floor price for emissions to raise unnecessarily the costs of processes that involve emissions? That is exactly the very issue the authors argued against, that is, government interventions can often be inefficient and in this instance it would be attempting to overdo it in emissions reduction to deviate from optimality.

We'd do a better job by being consistent ourselves in our argument and approaches. Otherwise we may be self defeating.

PS: The following is my comments on their article on ClimateSpectator on the same day - http://www.climatespectator.com.au/commentary/let-markets-lead-way Their article there has some nice graphs, though.


I have commented on their article on The Australian entitled "Market best to reduce carbon".

The very problem we are having with emissions and climate change has been the failure of the market in accounting the real costs of emissions.

That fundamental fact cannot and should not be ignored.

So, both the market and government policy are needed to reduce emissions.

In that broad context, the best option for government policy in terms of efficiency and innovative incentives for businesses is to have a carbon tax.

Further, the global nature of emissions and climate change requires a global approach and common actions by many countries especially the major economies with largest emissions.

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