Context: The crisis is stark, but the economic trade-offs involved in addressing it call for careful deliberation.
Challenges raised by climate change at a global stage:
Economic performance linked with Gross Domestic Product (GDP): This model is insufficient to monitor environment variables.
Disruptive green shift: At the very least, it will involve high financial costs.
Countries like India still have low carbon emissions per capita, as well as low carbon intensity for every unit of GDP, making it a scenario of climate injustice for India.
There’s another aspect of climate justice that is just as important: between current and future generations.
A lot depends on what economists call the discount rate, on how costs are shared between generations. This raises two important questions?
Should the discount rate in climate change economic models be low or high? – low rate puts a higher burden on the current generation.
Should the discount rate be chosen subjectively or taken from an objective number such as the long-term interest rate used to value investment projects?
Devising incentives: There are two contrasting ways in which incentives can be used to make the shift to a green economy as smooth as possible.
One option is to impose hard pollution quotas decided by a public agency. This could slip into a new version of the licence raj.
The other is to use policy levers to change relative prices, either by imposing high carbon taxes or by subsidizing alternatives; this poses a problem of bias, for e.g. big subsidies for solar power might make it harder for other green options to attract investment.
A carbon tax is simpler because it punishes polluters but makes no distinction between green alternatives available right now and ones that can potentially emerge later.
Climate change mitigation policy revolves around states: Most heavy lifting in terms of climate change mitigation policy is being done by governments, given the negative externalities involved.
Keeping climate change in check is perhaps the biggest example of global public good, in the sense that its benefits are non-rival and non-excludable.
Way Forward:
Shift to green accounting: Shifting to a green economy will mean that changes in stock will matter too. A lot of economic activity converts stocks into flows.
One example is to look at changes in natural capital in tandem with those in physical and human capital. Green national accounts would have to take that depletion into account.
Ensuring climate equity: Both between the developed and developing nations and between the present and future generations.
Involving and cities and private entities: Individual cities or companies can also draw up their own strategies to reach net carbon neutrality by 2050 or even earlier.
When former US President Donald Trump pulled the US out of the Paris agreement, individual states, companies and universities responded with voluntary pledges to cut their carbon footprints.