Can Economics save the Environment?

Joseph Aldy
New Economic Thinking, 2020
Level: beginner
Perspective: Ecological Economics
Topic: Development, growth, Innovation, International Political Economy, macroeconomics, resources, environment & climate
Format: Short Presentation
Duration: 00:18:35

Can Economics Save the Environment? Professor Joseph Aldy from Harvard Kennedy School gives us some insights about how economics can set the balance between policymakers, scientists, employers and citizens. He mentions that if you are going to some of the big developing countries around the world, we can see that they are more concerned about air local pollution than they are necessarily about climate change. In his opinion, designing a climate change policy that can both deliver lower-carbon energy and reduce the emissions that can cause health effects, we are getting the climate benefit and the immediate public health benefit from improved air quality. The most aggressive places tackling climate change are using a mix of policy instruments, for example, some use carbon tax by pricing the emissions of carbon dioxide through a tax system and some use cap and trade programs by setting a quantity goal, the amount of carbon dioxide that all the firms in a province or a country are allowed to emit. Professor Aldy thinks there is a general consensus of what we need to do, and the challenge is how we distribute the effort around the world. He strongly suggests reducing emissions of CO2 in developing countries. Furthermore, it is explained that there are opportunities in developed countries to make that initial push by implementing innovative low carbon or zero-carbon technologies to help bring down the cost of those technologies; this will make it easier to deploy these technologies in developing countries.

Comment from our editors:

Professor Aldy begins by explaining the mechanism behing carbon emmission allowances and makes a strong case for what might be described as Pigouvian taxes on companies that manufacture high carbon emitting products when used or are non-biodegradable, in order to finance more environmentally friendly policies and programmes.

He proposes a mix of policy instruments as a cautious approach not to limit emissions to a sub-optimal level, meaning the policies have adverse side effects on the relatively necessary emissions for economic activity.

Overall, the video is a good introduction to the complex nature of environmental economics, the need to draw from other areas of economics to solve the challenges we face when developing nuanced solutions to tackle climate change quickly and efficiently.

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