Climate change has raised

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.