Almost nothing has more power to create prosperity, overturn governments, damage the planet, or change lives than markets. So as heads of state gather at the climate conference Paris next week, it’s worth remembering that it was a market failure that caused our climate pollution problem and, just maybe, it is smart market-based policies that can save us.
The evidence for this proposition is strong. Already, carbon markets – systems that limit overall pollution but allow trading within those limits to spur efficiency – are reducing climate pollution in more than fifty states, provinces, countries, and regions, from California to South Korea to Europe, that are home to almost a billion people. The EU’s Emission Trading System alone has kept hundreds of millions of tons of carbon dioxide out of the atmosphere.
The economic benefits of emission markets are borne out by the results. The original environmental program to limit air pollution using markets – the 1990 plan that cut acid rain dramatically — cost far less than predicted. Under the current California system, climate pollution is going down and the economy is growing. And in the past three years, the carbon market created by nine states northeastern US states has generated $1.3 billion in economic value and saved consumers $460 million, according to a report by the Analysis Group.
The theory behind it is simple. The world economy is driven by a search for profits. That’s how investors, inventors, and entrepreneurs are motivated. Market-based environmental policies change the incentives, so that cutting climate pollution is more profitable than creating it.
Without smart policies, companies take advantage of the fact that polluting is free. They can off-load the cost of damage caused by climate pollution to taxpayers, who pick up the tab in the form of infrastructure spending, storm damage, health impacts and other expenses.
What’s exciting is that since the US Congress declined to establish a market-based system for climate pollution in 2010, the idea has been bubbling up from the local level. States have moved ahead with their own programs – and are even forging international market linkages, like the one between California and Quebec. In China, regional carbon markets were the proving ground that gave the national government confidence to announce plans for an economy-wide market for climate pollution. (It’s now time for the US Congress to catch up.)
In Paris, environmental advocates like me will be pushing for ever greater cuts to pollution, and some in industry will be pushing back to protect their short-term economic interests. But the discussion should not be over whether we need to save ourselves from this manmade disaster, but instead what’s the most effective and efficient way to do it. Those countries looking for a way to do their share while promoting economic efficiency will find that, with the right policies, the market can be their greatest ally.
This post is part of a “What’s Working: Low-Carbon Economy” series produced by The Huffington Post, in conjunction with the U.N.’s 21st Conference of the Parties (COP21) in Paris (Nov. 30-Dec. 11), aka the climate-change conference. The series will put a spotlight on solutions to shifting away from fossil fuels to renewables, and how we can best minimize our output of greenhouse-gas emissions. It is part of HuffPost’s What’s Working editorial initiative. To view the entire series, visit here.
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