The Need for Government and Consumer Action to Tackle Climate Change

Climate change has been called “the greatest market failure in the history the world has ever seen”. As is the case with most market failures, the reason is an externality – the CO2 (and other greenhouse gases) dumped seemingly free of charge into the atmosphere. To correct for this economic system error, a price must be set for emitting carbon dioxide and other greenhouse gases, one way or another. The relevant questions are: who is to set the price, how should it be done, and how high? In the following I am going to explain why the answer to the first question is: governments and consumers, but not private firms. Continue reading