Assignment for Wed. Feb. 4
I. Robert D.Atkinson and Darrene Hackler, Economic Doctrines and Approaches to Climate Change Policy, October 2010
Atkinson-etal-2010-econ-climate-change_theories
Read pages 1-12 (here the authors explain how various economic assumption that are at the heart of different climate change policies (Neoclassical economics; Keynesian economics; Innovation Economics). Then take a look at the following pages from the article: Pgs. 20 – 22; 25 – 29 and 30 – 31.
Discussion in class on the following questions:
- What do neoclassical economists believe are the central issues to resolve in addressing the challenges of climate change?
- Which of the economic concepts (reviewed in last week’s class) are important to the neoclassical view? What are the assumptions of the neoclassical perspective?
- What is your assessment of the neoclassical perspective? Are the assumptions about human economic behavior and about how to address environmental problems workable in the real world economy? Explain your reasoning.
- Describe specifically (two or three ways) in which the neo-Keynesian perspective differs from the neoclassical perspective?
- What do neo-Keynesian economists view as important in addressing the challenges of climate change? Explain
- What are the principal problems the authors have with both the neoclassical and neo-Keynesian policy proposals for addressing climate change? What are the three arguments the authors cite as to why neither the neoclassical nor the neo-Keynesian views offer an suitable policy framework for addressing the climate challenges of the 21st century?
- The authors discuss what they call “Innovation Economics.” What do Atkinson and Hackler mean by innovation economics? Describe their perspective.
II. Read the two short articles by the IETA and Henry Paulson.
The Coming Climate Crash_H Paulson
Why Emissions Trading is More Effective Than a Carbon Tax_IETA
- What policy does Henry Paulson advocate for addressing climate change? What is a carbon tax? Why does Paulson believe this policy is workable?
- What policy does the International Emissions Trading Association advocate for addressing climate change? Why does the IETA believe this policy is workable?What is “cap and trade”?
III. Overview of the carbon tax vs. “cap and trade” (tradable emissions permits.
IV. GROUP PROJECT in class Wed. Feb. 4
- What do you believe are the most important issues with respect to current environmental challenges?
- Would a carbon tax – proposed by Henry Paulson – be an efficient and adequate policy to reduce the carbon emissions that contribute to climate change? Explain your reasoning.
- Consider the other proposals discussed by Paul Krugman, such as a “cap and trade” system, government subsidies for development of clean energy, and a utility buy-back of unused electricity from consumers’ solar panels. Would any of these (or some combination of these proposals), be efficient in reducing carbon emissions? Explain your reasoning.
- Which economic theory does the carbon tax proposal seem to best reflect? Explain why. Which economic theory do the proposals for cap and trade and government subsidies for clean energy development seem to most closely reflect? Explain your reasoning.
- What kind of policy do you believe the so-called “innovation economics” theory would advocate and why?
- Given the three policy perspectives discussed in the reading, describe what you believe to be the most efficient policy for addressing climate change? (This might be any combination of the policies reviewed). Would your policy include anything suggested by the so-called “innovation economics” perspective? Are there other actions that are not included in the readings that would be efficient?
Be sure to clearly explain your reasoning.
V. Discuss and submit top two choices for semester research project
Henry Paulson believes that a carbon tax is the best way to battle global warming. A carbon tax is when a price is put on the emission of carbon into the environment. He believes that this approach is feasible because we have the technology and productivity already in place to accomplish this task. He feels that the two power houses of the modern world, The United States and China, can work together and make this plan happen. The United states has the technology to invent new ways to avoid climate change, and China has the production facilities in place to manufacture enough to create a real difference in the amount of carbon released into the atmosphere.
The International Emissions Trading Association believes that a cap and trade approach will have the best chance on stopping global climate change. A cap and trade system is when a governing body puts a limit, or cap, on the amount of greenhouse gases allowed to be released into the atmosphere. If the limit is not met then the difference can be traded or auctioned off to companies. They believe that this method is workable because it has already worked in the case of the acid rain reduction program.
Submitted by Basmattie Uditsukhu
Read pages 1-12 (here the authors explain how various economic assumption that are at the heart of different climate change policies (Neoclassical economics; Keynesian economics; Innovation Economics). Then take a look at the following pages from the article: Pgs. 20 – 22; 25 – 29 and 30 – 31.
Discussion in class on the following questions:
1. What do neoclassical economists believe are the central issues to resolve in
addressing the challenges of climate change?
According to the Liberal Neoclassical approach, “price mediated” markets will offer a solution, utilizing the cap and trade phenomenon. In this system, all polluters will have a cost attached to their pollution. According to the author, a higher cost of emission resulting from a cap will reduce emission.
As highlighted there are several problems with this cap and trade mechanism and these includes:
A clean energy source is needed for solving this global climate issue and this cap and trade mechanism assume this will happen when this may not be the case.
There are uncertainties as to what is an appropriate cap; the emission-allocation process needs to be determined correctly.
It requires the government to design new institutions and give power to some organization to administer the trading system.
Any cap established may be insufficient to drive deep and radical innovation and will tend to drive incremental technical improvements and marginal cost reductions.
2. Which of the economic concepts (reviewed in last week’s class) are important to the neoclassical view? What are the assumptions of the neoclassical perspective?
It is based on a supply and demand phenomenon. Higher energy price will lead to more supply and less demand. The market force is utilized.
3. What is your assessment of the neoclassical perspective? Are the assumptions about human economic behavior and about how to address environmental problems workable in the real world economy? Explain your reasoning.
This theory does not support the research and development of newer technology the will not utilized carbon emission or more efficient clean energy source hence the problem will still exist.
4. Describe specifically (two or three ways) in which the neo-Keynesian perspective differs from the neoclassical perspective?
Neo-Keynesians see government subsidization of of low carbon activities as necessary to their competitiveness and is needed to direct the market in a clean energy direction. This is unlike the neoclassical perspective.
They support the requirement of a renewable energy standard (RES/RPS). RES and RPS impose a legal obligation on electricity supply companies to produce a specified fraction of their electricity from certified renewable energy.
Neo-Keynesians advocate assisting desirable industries with subsidies in contrast to the neoclassicalists who see subsidies as distorting the market. Neo-Keynesians views subsidies as one more tool government can use to achieve desired economic and social outcomes.
5. What do neo-Keynesian economists view as important in addressing the challenges of climate change? Explain
According to neo-Keynesian economists, the government should have an input and provide subsidies to enable them to compete with lower cost carbon based fuels and the utilization of renewable energy. Some of the cost reducing measures as listed may include: electric vehicle tax credits, financial tools such as “green banks”, revolving loan funds and “cash for caulkers”, which will seek to increase renewable energy adoption and induce energy efficiency.
6. What are the principal problems the authors have with both the neoclassical and neo-Keynesian policy proposals for addressing climate change? What are the three arguments the authors cite as to why neither the neoclassical nor the neo-Keynesian views offer a suitable policy framework for addressing the climate challenges of the 21st century?
Both assume that the only options are setting a price on carbon through a tax or cap, regulating energy consumption, and/or subsidizing existing renewable energy sources. According to the author, these offer restricted views of the policy problem and condone government intervention only for the sake of correcting an externality or ensuring an equitable outcome.
In addition to the above, both are intended to make existing technologies cost effective with carbon based energy and are not based on a clean energy innovation and both does not focus on the process of innovation.
7. The authors discuss what they call “Innovation Economics.” What do Atkinson and Hackler mean by innovation economics? Describe their perspective.
Innovation Economics seeks to develop clean energy innovations and includes measure that will facilitate innovative actions, improve productivity and support a clean energy innovation system. Innovation economics also supports the government’s intervention to correct market failures and agrees that getting the price right is necessary.