Markets Can't Solve Problem of Climate Change

 Pollution, especially greenhouse gas emission, is now the major concern and all nations will meet from 28th November onwards in Dubai to see how global warming can be kept below 1.5 degrees centigrade above pre-industrial levels. We live in a capitalist world in which it is mandated that solutions to all problems be sought through the market. However, pollution can't be priced as there are no property rights in it and so is not naturally amenable to being traded in the market. The economist Arthur Pigou first recognised this and advocated governmental intervention through the imposition of taxes to regulate pollution. However, this was not palatable to neo-classical economists and so eventually Ronald Coase suggested that the Government apportion property rights on pollution to a party and then let bargaining in a market situation between those having property rights on pollution and those not having them, apportion costs in a fair manner. Later John Dales came up with the concept of marketable pollution permits or licenses being created by the government as a more workable option. With pollution permits and licenses which are tradeable, market forces come into play that can ensure efficient resource allocation and appropriate costs. This has now been extended to the creation of carbon credits by Government fiat, which can be bought and sold to offset emissions. However, this can't really solve the problem of global warming because as Garrett Hardin pointed out, in the real world a prisoner's dilemma kind of situation prevails in which every actor avoids buying carbon credits and tends to pollute as much as possible in the short run as there is no trust among them that others will refrain from doing so. Moreover, the emissions currently are as high as 40 billion tonnes whereas carbon credits being generated at present are for a paltry 100 million tonnes or so and can at most go up to 1 billion tonnes if afforestation is done on a massive scale.

Clearly, the market cannot solve this huge problem and there has to be Government intervention to reduce emissions either through. Over and above this Elinor Ostrom suggested that civil society actors too can play a significant role in abating pollution through collective action which complements and moderates the actions of both the market players and the State. If the civil society organisations can set up a conservation rule system based on consensus and implement it within their areas then pollution can be controlled for mutual benefit of the organisations themselves and for society as a whole.