[939] Of climate change and global warming are market failures

From time to time, somebody will point it out to me that libertarianism and environmentalism have opposing ideas in them. Perhaps.

I however manage to merge the two philosophies together because I understand market failure (as well as externality). The concept of market failure is what many libertarians refuse to accept despite the economics behind it. I’d be damned if I ignore market failure and call myself a graduate of economics. I reached to this conclusion when I first encountered tragedy of the commons as an economics undergraduate.

I’m a classical liberal in the sense that I’ll accept market solutions as superior to government solutions as long as market failures are absent, in most cases.

A few days ago, British economist Nicholas Stern published the Stern Review on the Economics of Climate Change:

The scientific evidence is now overwhelming: climate change presents very serious global risks, and it demands an urgent global response.

This independent Review was commissioned by the Chancellor of the Exchequer, reporting to both the Chancellor and to the Prime Minister, as a contribution to assessing the evidence and building understanding of the economics of climate change.

The Review first examines the evidence on the economic impacts of climate change itself, and explores the economics of stabilising greenhouse gases in the atmosphere. The second half of the Review considers the complex policy challenges involved in managing the transition to a low-carbon economy and in ensuring that societies can adapt to the consequences of climate change that can no longer be avoided.

The Review takes an international perspective. Climate change is global in its causes and consequences, and international collective action will be critical in driving an effective, efficient and equitable response on the scale required. This response will require deeper international co-operation in many areas – most notably in creating price signals and markets for carbon, spurring technology research, development and deployment, and promoting adaptation, particularly for developing countries.

Climate change presents a unique challenge for economics: it is the greatest and widest-ranging market failure ever seen. The economic analysis must therefore be global, deal with long time horizons, have the economics of risk and uncertainty at centre stage, and examine the possibility of major, non-marginal change. To meet these requirements, the Review draws on ideas and techniques from most of the important areas of economics, including many recent advance, including many recent advances.

Climate change and global warming induced by human are forms of market failure and externality, as with many other environmental problems.