By Dennis John, December 2019
The most important macroeconomic policy objective, arguably, is to achieve economic growth. However, many people, economists and others alike, have come out and questioned the sustainability of this economic growth. Indeed, some of this economic growth is simply proceeding to cause a fall in the standard of living of others. But can governments and investors do more?
For an effective response, there are three main policy initiatives that governments across the world can take on. The first of these involves the usage of carbon pricing methods, which could be through taxation or through trading permit schemes. These have been being used by the EU in the form of EU Emissions Trading Scheme (EU ETS). However, its effectiveness has often come into question, considering that only 45% of all EU greenhouse gases are covered by the scheme. Secondly, governments could subsidise the research and development of low-carbon technologies, using “net-zero” emissions targets. Thirdly, governments can educate inhabitants about the effects of climate change. However, according to behavioural economics, economic agents often experience inertia through habits, e.g. always driving instead of taking public transport. This bounded rationality really reduces the effectiveness of these schemes, as they might still not switch to an eco-friendlier alternative.
Investors are no saints either. The occurrences of the wildfires in Australia and the Amazon have been heavily influenced by climate change. Australia is, in fact, the world’s largest exporter of coal, and contributes to nearly 4% of worldwide CO2 emissions. Therefore, the investors could plant more trees to decrease overall CO2 output. The government and investors could cooperate to make an economy friendlier. For example, investors could start up greener home insulation programmes, so less energy is wasted through excessive heating. The government could also subsidize this business to encourage its creation. Furthermore, investors could support climate change initiatives which are proposed by the government. The government could also subsidise the construction of electric charging points in all car parks and petrol stations across the UK, and the investors could put their money into the firms which are making them. Finally, the government could subsidise renewable energy production, and therefore investors could put money into renewable companies as well.
Companies must also play a part, and this may be through obtaining energy from sources with Renewable Energy Guarantees Origin (REGO) certificates in the UK. REGO is a scheme by Ofgem in the UK to verify the origins of renewable energy within the UK. Companies can also try to cut down on business travel, as on average, 47% of a company’s carbon emissions come from it.
We, as consumers, also need to change our attitudes to climate change if substantial changes are to be made. A government cannot leave a major climate change agreement if they know that it will cause them to lose votes on election day.
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