Question

Two alternative policies to address climate change are (i) a tax on emissions of greenhouse gases like CO2 and (ii) technology mandates, like fuel-efficiency requirements in cars and home energy improvements. Discuss briefly the advantages and disadvantages of these two types of climate policies. Which would you recommend if you were in charge of the global climate policy apparatus, and you could choose only one? Explain your reasoning.

Answer 1

There are two policies to address the problem of climate change. One includes taxes on emissions of greenhouse gases like carbon dioxide and another is technology mandates like fuel efficiency requirements. Some of the advantages of environment taxes include promotion of enviornmental conservation, promotion of socially efficient output level and generation of revenue for the government. Some of the disadvantages of taxes include increase in administrative cost for the government and increase in overall cost of production which will increase prices and thus harms consumers.It is also a short term measure to control pollution and not a sustainable solution to control pollution.

The technology mandates are a sustainable solution to the problem of climate change. This is because it provides a long term solution to the problem of climate change and is the most effective way to reduce pollution. However, one of the disadvantages of this solution is increase in overall cost for the firms. This will lead to increase in capital expenditure of the firm on technology upgradation and thus increases overall cost of production.

In case of choice between two solutions, technology mandates is an effective and efficient solution as it is a long term solution to the problem of climate change in India.