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.

It could be argued that, since the recognition of anthropogenic climate change is widespread, also among those running private enterprises, it could be expected that they correct their production (and thus the prices of their products) in such a way as to possibly minimize emissions of greenhouse gases. Many corporations have been aimed at by environmentalists (e.g., there is currently a Greenpeace campaign against VW running) because of their climate damaging production processes or products. Though these activities by environmental groups are important in shaping public opinion, it is actually naive to expect that firms behave climate-friendly of their own accord. The reason for this is, ironically, something that we generally agree is beneficial – market competition.

As long as there is no externally (from the viewpoint of the private sector) set carbon price (or, with other words, an internalization of the greenhouse gas emissions externality), the only possibility for firms to correct their prices is to do so voluntarily. There are firms doing exactly that – offering climate or more generally environmentally friendly products. If they are truly environmentally sound, these products’ prices are likely to be significantly higher than normally. However, the demand for such products, although significant in some rich countries, is limited. Most consumers, even in more affluent societies, look mainly after the price when they shop (for instance, 46 per cent consumers in Austria and Spain take prices as the most important shopping criterion, as well as 43 per cent Germans and Italians). So, if a firm tries to include the environmental external costs in its prices and fails to find environmentally aware niche customers, it soon gets outcompeted by others and drops out of the market. This is an iron law of competitive markets. This leads producers to largely ignore climate change and other environmental issues – they fear market loss. And, from their own viewpoint, they rightly do.

However, there are initiatives of private corporations that try to define certain environmental, social and other standards of conduct – e.g., the so-called Global Compact. This appears to be a way to avoid market losses by engaging in such activities together with competitors. However, after a closer look two problems appear. First, since such initiatives are always voluntary, they tend to be hardly more than “greenwashing” and have only little potential for real change. Secondly, only big players are mighty enough to engage in them and expose themselves to the risk from competitors reluctant to follow suit.

Thus, it cannot be expected from firms that they behave really environmentally responsibly (i.e., beyond legal standards and commonly agreed upon consumer demands) – in a market economy, they wouldn’t survive. The “big guys” certainly have the capacity to include some environmentally responsible activities in their production processes and thus force competitors to follow suit – but they won’t and cannot be expected to do it at the expense of their market position.

This leads to the recognition of the role of the government, on the one hand, and the consumer, on the other. It is generally agreed that the most effective way to correct market failures is regulations by the government. In the case of climate change, these would include: a carbon tax and/or a cap-and-trade scheme, product and production process standards and similar instruments.

The main problem of a sole concentration on the role of the government is (aside from the more general issues of bureaucracy, political opportunism etc.) globalization. As I already once discussed, free trade with all its facets constrains the national government’s ability to run a truly effective environmental policy – by raising standards it risks outsourcing and a general loss in the country’s competitiveness. These risks are often exaggerated by corporations when they expect new regulatory legislature, but they nevertheless are present and do constrain the government’s policy space.

This leads us to the role of consumers in tackling climate. Disperse as we are, together we have the capacity to change the whole economy – simply by choosing particular, climate-friendly products and dismissing other. Moreover, the role of consumers is hardly constrained by the hyperglobalization problem – since the demand in a given market is what determines supply, it is of no meaning who is the supplier and where he does come from. The only important thing is that she meets consumer demands. Otherwise she drops out of the market. Because climate change and greenhouse gas emissions are a global problem without hot spots, it doesn’t matter who and where does reduce emissions.

Of course, consumers are not homogenous. Furthermore, in the case of climate change, they have strong information deficiencies. Thus we get back to the role of the government – among the main tasks of any government are education, information and the promotion of public good. Thus, while governments certainly have to put in place regulatory standards as to induce climate-friendlier production processes and products, they are also inclined to inform their citizens and to try to convince them that price is not the mere important consumption criterion. Together, consumers and governments have the potential to change production and consumption patterns and thus contribute to the solution of the global climate challenge.

17 thoughts on “The Need for Government and Consumer Action to Tackle Climate Change

  1. It is all nice and perfect in writing. However, I have my doubts regarding effectiveness of your proposals. Just try to tell people about increased cost of life and rising unemployment and the desire to act in a union will go.
    The problem is there but it is much more complex to resolve than we think. At the core of it is the adopted economic model. Without tackling the core our actions will be treating symptoms not the cause.


  2. I guess you misunderstood my point. I don’t say that it is easy to get consumers and governments to tackle climate change. Actually, it is a terribly hard task. I just said that this is what is needed. Without action by governments and by governments we can forget about maintaining a stable climatic system.

    At the core of it is the adopted economic model.

    I fully agree. But you must consider one important aspect: the “economic model” is not an abstract, exogenously given thing. Rather, it is determined by our values, actions and attitudes. And by us I mean all people – consumers, politicians, entrepreneurs and others. You cannot change a system (in this case, what you call the “economic model”) if people have not changed.

  3. “You cannot change a system (in this case, what you call the “economic model”) if people have not changed.”

    What comes first? There are several ways of looking at the problem. Just think about TV adverts, their presence is the norm. I do remember times when such adverts were an exception. One may doubt if they have become so common as a result of popular demand. Today’s floating currency exchange rates have very little to do with an average person. In fact, for most of us are a nuisance. The truth of the matter is that at the time nobody asked us ( meaning people) about preferences. However, you are right that with the passing of time we get used to the situation and accept it as a norm.


  4. There is some truth in what you write. But changing things like advertising frequency and intensity or similar things (floating exchange rates are, economically speaking, a good thing, but let us not discuss this here) is partly government’s job, but nevertheless we shall not forget that people are not some easy-to-manipulate animals. If we don’t react to advertising, it won’t pay any more. The great problem, as I see it, is that people are too dispersed in their interests and actions, too alienated from each other (especially in the so-called developed countries).

    nobody asked us

    Jein, as a German would say. Nobody asked us explicitly, but we are, so to speak, the demand for products (and thus for ads), and we live (at least in theory) in democracies – people’s power. And I don’t mean those one-in-4-years ballots where you often don’t know why to participate in since no party really suits your expectations. I mean public discussion, protest and so on. One may not agree with those who Occupy Wall Strett (and other places around the “developed” world), but these people are showing us what democracy means – government by (public, not Green Room) discussion.

  5. Things are not clear cut in life. But think about your comments on GDP, happiness etc. GDP is an accepted parameter, the same may be said about “market forces” and “free market”. Those concepts live their own life irrespective of us, John Averages. Still, in my view, unless we tackle the basics of the model ( which includes above concepts ) we will be treating symptoms – increased emissions, pollution etc. I know, it is not easy. You said it yourself, we should start somewhere.


  6. I agree with your general message. However, what I don’t really understand: you say that the “model” lives its own life irrespective of us. But at the same time you seem to be calling for a change of the “model”. Who should change it if we have no influence on it (or do we have?)?

    I refuse to see anything as “independent” of the actions of ordinary citizens. For the logical consequence of such approach would be to go home and limit oneself to “not in my backyard”-attitudes at most. However, I believe (maybe somewhat naively) that the essense of democracy is that we can influence the way things are going. This is not an easy task – it presupposes communication, agreement on goals, organizations. But this is what constitutes democracy – not ballots. And, as you rightly point out I said myself – we not only should, we have to start somewhere.

  7. ” lives its own life irrespective of us. ”

    A good example could be found in Greece or some other European countries. The events in Europe are a case of apparent disconnect between “us” and people responsible for decision making. You are right, in an ideal democratic system people are engaged in the decision making. In my view, current democracies have drifted towards a “competent managerial” model with all resulting consequences.


  8. You are right in pointing out that “current democracies have drifted towards a “competent managerial” model” – at least many of them. However, a part reason for this is that people lost interest in democracy. Consumption, career and private life apparently have become more important for many – but engagement in politics in the sense of democracy as government by discussion costs time and effort. One must not only take part in the widely understood discussion process, but in informing oneself as well. My impression is that most people either don’t want to take this effort or they don’t believe that it will pay. However, the latter is only partly right – and Occupy Wall Street is not the first example that organizing together with others can make a difference.

    So, the “competent managerial” democracy is a result of disinterest on the side of the people, not so much of some vested interests by the politicians and lobbyists (although the latter certainly plays a role as well).

  9. “So, the “competent managerial” democracy is a result of disinterest on the side of the people, not so much of some vested interests by the politicians and lobbyists (although the latter certainly plays a role as well).”

    I have found a very interesting observation by prof. A.C.Grayling

    “…at the heart of the dilema of our time: the way our democracy and its institutions are being subjected to manipulation, cover-up and dishonesty of purpose, to the extent that they can even be bought by outsiders.”

    Here the failings of a democratic state are fairly and squarely put on the shoulders of the politicians and the fellow travellers. Disinterest of the wider public and/or loss of faith is the result not the cause.


  10. I don’t agree with Mr Grayling. (But I guess that our theses with regard to what is wrong with democracy are hardly falsifiable.) I can only repeat that whereas I acknowledge the fact that a part of Western democratic institutions is functioning badly (allowing for powerful minorities’ interests to become official policy), I don’t think that the disinterest of the broad public in participation is a result of that. Nor is it a cause. I would rather say that both are constituents of the democracy crisis we are facing (although I am not sure whether we can call it a “crisis”, since democracy never functioned decisively better). However, the consequence of both interpretations (mine and Mr Grayling’s) is likely to be the same: it is an active civil society who must force a change.

  11. ” it is an active civil society who must force a change.”

    I do not see it possible for all of us to become activists. Consequently most of us will try once or twice to effect a change and if no results are forthcoming the efforts are directed somewhere else.


  12. There is no need for all of us to become “activists”. First, because public engagement need not equal “activism” (going to a demonstration or taking part in a petition is not what I would call activism), and second, because some kind of a “critical mass” shall suffice.

    Furthermore: I only point out what, in my opinion, should be done. Whether people are likely to do it… One may ask oneself, why now if they haven’t done it so far?

  13. One more thing: you say

    I do not see it possible for all of us to become activists.

    The fact is, if we want to be involved in political decision-making processes, we have to make the effort of active participation. Otherwise there is no reason for us to complain.

  14. “The fact is, if we want to be involved in political decision-making processes, we have to make the effort of active participation”

    Could you be more specific?


  15. What I have written above, examples of such active participation are: taking part in demonstrations, signing petitions, conscious consumption choices, voting choices, engagement in civil society groups or associations… There are many possibilities. Some cost more time and effort, some less. They don’t bring instant results – sometimes there may be no results at all. However, not trying is equal to resign oneself to the status quo.

  16. “However, not trying is equal to resign oneself to the status quo.”

    This is not about trying. All examples ( with the exception of consumption, which is a completely different issue) given by you, somehow indicate that either democratic system doesn’t work or democratically elected representatives do not take their responsibilities / duties seriously. In addition there is a distinct gap between election time promises and the “in between” action. Why are we suppose to demonstrate or form NGOs ? Isn’t the duty of democratically elected structures to be attuned to our “desires”?
    Don’t we have elected representatives who should attend to our suggestions?
    May I ask you? If I vote for a political party, for a specific political/social program and that party comes sceond best, is my only recourse to go out and demonstrate and or form a NGO?


  17. Of course, you can rely on the political parties to do what they promise. However, mostly they don’t, due to many different factors (inertia, pressure by lobbyists, the fear to lose the next election etc.). And you know that. I don’t know how to fix that. I doubt it is possible at all.

    Furthermore: democracy is not only about voting/elections. We cannot make a vote once in 4-5 years, and then lean back and wait for the politicians to do what they promised. Democracy is not an once-in-4-years event, it requires a continuous engagement of the citizens, an active participation in politics (government by discussion). If not by definition, then because lobbyists (to take one example) don’t lean back and wait for the next election, either. So, yes, the democratic system doesn’t work if we expect it to run like a clockwork, without any further action. There are no perfect human systems, since humans are by far not perfect. As every other human system, democracy (and democratic governments) needs corrections, checks and control all the time.

    If I vote for a political party, for a specific political/social program and that party comes sceond best, is my only recourse to go out and demonstrate and or form a NGO?

    Have you any other idea? (exept waiting until the next election?)

    with the exception of consumption, which is a completely different issue

    Why is consumption a different issue, if I may ask? Suppose that you don’t like the government’s politics toward conventional agriculture (GM food, factory farming, uncontrolled use of pesticides and fertilizers etc.), as I do. You can protest against this, vote for parties engaging your desires – or you can switch to buying, say, organic food, and thus “bypass” the government and its inability/lack of will.

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