Wednesday, July 28, 2010

Externalities and Global Warming

New York Times economics writer Dave Leonhardt succinctly captures the reason that greenhouse gas emissions can't be curbed without some intervention in the market:
The fact that carbon emissions are warming the planet doesn’t make it more expensive to produce those emissions.
That's it. The costs associated with global warming will be considerable, but will not be born by those who extract and burn fossil fuels. This is the classic definition of an externality.


Leonhardt continues:
The ultimate goal of climate legislation — be it the bill that the House passed last year or the bill that died in the Senate last week — is to align the incentives better, so human ingenuity can be harnessed to fight global warming. The bills would increase the cost of emitting carbon, thereby giving companies reason to emit less. Absent that, the best bet seems to be that emissions will keep rising and the planet will keep getting hotter.

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