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The solution for climate change

 Salomons Judgement

An economist knows more about climate change than you might think. He even has the solution.

Climate change is a controversial topic, but the facts cannot be disputed. The temperature on earth is now on average 1 degree Celsius higher than it was in the past century. The argument on global heating is mainly about expectations. Once cause and effect is discussed, everybody is all over each other.

As a result of technological developments, living standards have improved in the past 150 years and the extreme poverty is falling. The average world income has increased almost 10 times in that period. The downside is a rising temperature on earth, higher sea levels and more extreme weather. Economic growth and climate change are interrelated.

Economist and winner of the Nobel Prize 2018 William Nordhaus was the first to develop a mathematic model that makes clear how economic growth, CO2 emissions and climate change interact. Market failure plays a role in this. As companies and consumers fail to see the direct (pollution) costs of their behaviour, a completely free market leads to extra pollution. So, there is a job to do for the government here. Nordhaus was one of the first to plead for a global CO2 tax.   

Let’s assume that more economic growth has adverse effects on the climate. And let’s agree with the experts: global warming goes faster than expected and must be limited to 1.5 degrees Celsius. In that case, economists have a solution: a CO2 tax. And rightly so.

Not all companies and consumers will be happy with it. Politicians don’t dare to do it (yet). But as a stakeholder you can put this topic on the agenda. I would definitely do it. Building up capital is nice, but it’s also nice to be able to enjoy it in a liveable environment.

The author

Roelof Salomons

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