Economic Analysis of Global Warming Solutions

In December of last year, a World Climate Change Summit organized by United Nations in Copenhagen, Denmark sought for an agreement to reduce greenhouse gas emission among the developed and developing nations. It seems that the meeting was not able to help solve any problems because there were no resolutions passed by the associate members, and hence no enforcement. Moreover, measures were not tough enough to force a reduction on greenhouse gas emissions, allowing many industries to continue polluting the environment.

In fact, long term efforts had been made to organize the meeting and to solve the problem of global warming, but many countries gave no importance to this problem solving and prevention need. As a result, global cooperation to lessen greenhouse gas emissions has not been so successful.

The aim of this article is to analyze the cause of global warming and why cooperation has failed from an economic perspective, these reasons being:

The benefits of development exceed the impact of global warming
Development has yielded tremendous economic benefits, although people and governments the world over have known that development will have environmental effects. At the initial stage of development, natural resources were abundant and many thought more about their own benefits than about the costs of a degraded environment. As long as the increased benefits of development are higher than the increased environmental costs, people will continue holding on to development at the cost of the environment.

Ignoring global warming costs
People have caused a greenhouse gas increase because they are ignorant of its effects. Since the discovery of the greenhouse gas phenomenon and its effects, greenhouse gas emissions have existed because the majority of people have not realized its negative consequences. Global warming has therefore not been included as a human activity cost.

Effects from global warming are negative externalities
Like other environmental effects caused by industrial production, global warming is considered a negative externality, having a negative effect on parties not directly involved in the transaction, resulting in a market failure. The polluters shoulder fewer investment costs than they actually should, gain more benefits than they should and continue to pollute the globe, whereas non-polluters have to suffer the effects.

Solving the global warming problem is good for the public
All people will benefit from solving the global warming problem, no matter whether or not they pay for its resolution. In such a situation, there are people who are happy to gain benefits from solving the problem, but are not willing to pay for it. This has occurred in the case of international cooperation to solve the problem of global warming, where there are countries happy to gain benefits from the solutions, but are unwilling to contribute to the resolution process.

Cooperation to solve the problem of global warming is not fairly balanced
Conditions may be unequal among developed and developing nations at international conventions geared to solve the problem of global warming. This is due to a party who breaches the treaty gaining more benefits while a cooperative party loses benefits. Eventually, both parties will breach the treaty, though cooperation should bring more benefits to both parties.

Although solving the global warming problem seems a difficult task at international level, Thailand should prepare domestic, economic, social and environmental schemes that will curb the possible future effects of global warming. Not only are defensive measures needed but preventive strategies should also correspond with further problems.

Dr Kriengsak Chareonwongsak
Senior Fellow, Harvard Kennedy School , Harvard University
kriengsak@kriengsak.com, kriengsak.com, drdancando.com