Environmental economics is NOT an oxymoron. Rather, the environment and our economic systems are extremely interconnected.
Take, for instance, a market economy. In a market economy, the root causes of environmental issues are often negative externalities of market activities. For example, air pollution is an unintended consequence of manufacturing within industrial facilities. Moreover, the effects of environmental issues have important economic dimensions. Some of the connections are more obvious. Carbon pricing methods, such as carbon taxes and cap-and-trade systems, directly impact both the environment and the market economy.
Therefore, economic thinking is vital for the formulation of environmentally effective, economically sensible, politically pragmatic policies, especially those related to climate. This is the reason we need environmental economists like Robert N. Stavins, Director of the Harvard Project of Climate Agreements and A.J. Meyer Professor of Energy & Economic Development at Harvard University. I had the opportunity to hear Robert Stavins speak at a lecture entitled “What Could an Economist Possibly Have to Say About Climate Change (In the Age of Trump)?” at Georgia Tech earlier this week. He taught me that climate change is a an especially important situation that requires economic thinking to solve because of its global scope and long-term impacts.
From a spatial perspective, climate change knows no boundaries. Greenhouse gases spread throughout the atmosphere regardless of which cities, regions, or countries emit them. Anyone can contribute to greenhouse gases because they are not privately owned.
So, economically speaking, climate change is a global commons. And if we don’t address it as such by cooperating internationally, free-riders will continue benefitting from the economic profits of greenhouse gas emissions without taking any action to prevent their consequences.
Climate change is also difficult to cope with because of its temporal scale, according to Robert Stavins. While countries must pay the cost of mitigation immediately up front, the benefits of doing so will be delayed. Our natural instinct is to receive benefits as soon as possible and place costs on future generations, so the temporal scale of climate change is a challenge that we must learn to deal with.
The Paris Climate Agreement of December 2015 was a key step towards climate change mitigation/adaptation efforts. Compared to negotiations of previous years, this agreement expanded the scope of participation to include nearly 200 countries. However, the plans the agreement addresses cannot be successful without national policies and implementation to carry them out.
That’s where U.S. policies come into play. Robert Stavins related environmental economics to politics, referencing President Trump’s recent executive decisions and how they might affect the world’s policies on climate change.
Earlier this year, President Trump rolled back environmental regulations earlier this year, cutting back on the Clean Power Plan and Corporate Average Fuel Economy (CAFE) standards for vehicle fuel efficiency. On June 1st, he also withdrew the U.S. from the Paris Agreement. This decision means climate change activists must alter the ways in which they think. Rather than focus on the national policies within the Paris Agreement, how can we shift our focus to ensure that sub-national policies are recognized?
Robert Stavin’s lecture opened me up to a more interdisciplinary perspective on climate change than I previously held. As a U.S. citizen, it is critical that I am aware of how my country’s decisions have the capacity to alter global agreements. Even more, it is necessary for me to understand why climate change is not just an issue for the environment— it is also an issue for our economy.
These videos do a great job of simply explaining the effects of climate change on an economy and the reasoning behind carbon pricing decisions: