As of March 2019, 195 UN members have signed the Paris Agreement. The long-term goal of this agreement is to keep the increase in global average temperatures to well below 2 degrees Celsius above pre-industrial levels, and to pursue efforts to limit the temperature increase even further to 1.5 degrees Celsius.
This paper shows that if we continue with our current policies we can expect temperatures will rise to between 3.1-3.7 degrees Celsius by the year 2100. And even if we put in place all of the national pledges that countries have committed to recently, temperatures are expected to increase to between 2.6-3.2 degrees Celsius - far above the “well below 2 degrees Celsius” target.
There are now currently ongoing discussions between policymakers as to what is the most effective way in which policies should be designed to achieve the goals set out in the Paris Agreement. The two main policies being discussed is a carbon tax or a range of targeted infrastructure government spending projects combined with regulation, such as the ‘Green New Deal’ that is being proposed by Democrats in the US.
The carbon tax is an efficient way to create a reduction in pollution and force firms and individuals to develop more environmentally friendly alternatives to carbon. It’s not only this; it’s very difficult to foresee what could be the full economic benefits of the tax due to the billions of knock-on effects it will have across the economic system. For example, it may encourage people to use greener modes transport such as cycling or walking which will lead to health benefits that go beyond the reduction in pollution.
The main criticism of this policy is that firms’ production may simply shift to countries that don’t have carbon taxes. Therefore, until all of the countries in the world adopt the tax, it’s not likely to work. In addition, the cost of adopting such a tax has the potential be quite expensive (depending on how it is designed), reducing its efficiency. Related to this, there are lots of questions surrounding the optimal design for this tax, how do you determine the correct tax rate? Do you tax every carbon emitter in the country or only the largest producers of carbon? How do you prevent tax evasion from carbon production in an efficient way?
Then for the alternative policy: from an ideological perspective, this policy is based around large government injections into the economy in order to structurally shift towards a green and renewable based economic system. The benefits are clear from developing a policy framework under this goal; the criticism is that current plans in this area have been vague and its highly likely to be a large political challenge to gain widespread support for this due to the lack fo tangible benefits today from implementing these policies.
Before we offer our view in this debate, we’d like to briefly just explain why as an organisation that focuses on happiness economics research we are discussing this topic in the first place. From a happiness economics perspective there is no greater pressing issue than climate change at the moment. Improvements in quality of life, development and wellbeing all fall second in line to risks faced by not acting now to protect the future of the planet. This is not an overdramatic or pessimistic statement; it’s a realistic one based on the facts – the diagram in Figure 1 in the article below shows this quite clearly.
In terms of a policy response our view is that both a carbon tax and a targeted infrastructure plan should be put in place, in as many countries as is feasible. The carbon tax should be a starting point and should be implemented swiftly – the optimal design of this policy could be debated for decades, it will never be perfect, but its implementation will represent a large step in the right direction. Then in terms of the infrastructure spending plans, this should be done by taking the revenues from the carbon tax (and additional government spending, where possible) to change the structure of high-carbon producing economies to become green and renewable based.
Our view is that the best way that this can be implemented is through a top-down approach with government co-ordination with industries to find intelligent solutions for facilitating these structural changes. For example, governments should put in place overarching targets (similar to the ones in the Paris Agreement) and then show how they plan to reach these targets through sub-targets for reductions in greenhouse gas emissions across a range of important industries in that country. This needs to be a well-defined co-ordinated plan that is publicly accountable, such that should participants fail to meet their targets they will be publicly named and there should be financial disincentives should participants fail to meet targets several times.