Question

Climate Change

1. Why are CO₂ emissions more difficult to address than a classic externality?

2. Why does the discount rate play an important role in shaping the optimal climate change policy?

3. Evaluate the following statement: climate change is harmful to U.S. agriculture.

Answer 1

Answer 1. It has been agreed by many scientists that the main reason for the climate change on Earth is due to emission of CO2 and thus controlling it is a major task and needs immediate attention. But even after many researches it was observed that it is difficult to control the CO2 level as compared to addressing the problems of externality. It is because even after so much technological development using fossil fuels is still the cheapest and most cost effective way to produce energy. Every other possible way requires more cost and more technology which is presently not available in every country. While externalities refers to the effects that are spillover on the third parties due to an economic transaction between the two participating parties. It can be positive as well as negative. There no such need to control the positive one and there is only the need to control the negative one. Controlling negative externality is much more simpler as it can be controlled by imposing taxes when such negative externality takes place. For example when manufacturing units are setup in forests and lead to pollution then such taxes can be imposed to reduce pollution and thus such tax can be used to offset the pollution effect. But this can’t be done in case of CO2 as it is a major source of power generation and a cost effective one.

Answer 2. Discount rates help in measuring the present value of something that may happen in future. In real life the carbon that is emitted in the present days will have it’s effect on the environment over the next 50 or 70 years but we cannot measure the future effect in the present days. So this discount rate was developed to frame policies that will help us sacrifice sometjing today to get the benefit over the next coming years. To measure the effects of climate change and how it can be avoided we need to bring in the discount rate to measure it’s effect today so that it can be effectivelly controlled by making such appropriate policies.

Answer 3. Changes in the climate or environment affects the US agriculture in numerious ways. Climate change results in rise or fall in temperature, light or heavy rainfall, Presence of more pests in the atmosphere and also leading to lessening the properties of soil etc. All this could lead to poor yields and thus it may eventually lead to food shoetages. Any crop requires a particular amount of water and temperature to grow but if due to climate change such favtors are not present then the crop will not grow as it was supposed to grow. Thus, climate change soes have a large impact on the agriculture of US. And it certain measures are not taken to control the climate change then it could lead to permanent damage of crops in that particular area as there would be no such environment present for the crops to grow.