Solving Climate Change the Free Market Way


I saw a report in HT yesterday, which got me thinking about climate change economics. Here is an excerpt from it:

In a move that would significantly slash air pollution levels in the city, the Delhi government has decided to shut all its coal-fired power plants over the next four years and replace them with plants that use environment-friendly natural gas as fuel.
The shift to cleaner power will result in higher power bills for end- users, but Delhi’s chief secretary Rakesh Mehta is hopeful that citizens would pick up the tab.

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Is it sustainable? or is this even correct? Don’t get me wrong, I am definitely against Coal based power plants. And gas based power plants are better than coal ones environmentally, but economically they cost (3.5 INR) 1.5 INR more than coal ones.

Recently, when the prices were hiked by 10% or when the distribution system was privatized, it was suddenly a huge political storm with the ‘aam admi’ under the burden of prices. What awaits us this time? Now that the prices are being hiked in the name of environment, are the people going to accept them?

The question of today’s post is, Is saving the environment by opposing the force of economics sustainable?
Climate change has long been treated as a social issue and how it is everyone’s social and moral responsibly to respond to it. But since, I don’t believe that their is any bigger force in world other than power of  economics or free markets in particular, I believe that if any decision is not creating returns then its not sustainable. c’mon how long can anyone do charity? More over, if our climate change efforts are bringing any profit then there is no way that they are going to be sustainable. Ask yourself, are you willing to spend more than you earn just coz you want to help save humanity?

I feel that the solution to Climate Change lies in no external intervention. Let the markets deal with it. That is why I did support the Carbon markets although I still think that they are just giving the rich nations the right to pollute away to growth. But as I said, I feel that it was a step in the right direction coz it lets the market do the dirty work.

We need more steps like these that depend on the market. We could start with freeing the oil prices from the government subsidy. As a result their price will rise and it will become unsustainable for us to live on Carbon, and it will be feasible for us and our firms to shift to low carbon alternatives or even non-carbon alternatives. As time progresses, it is going to become unfeasible to even invest in carbon and so more and more investment is going to flow into Non-carbon energy resources, which will further our shift towards non-carbon economy. And in a few years time, we shall be in a whole new world without doing anything new from what we have been doing all this while ( i.e. doing business trading )

Such, is that the power of free markets that it only needs our governments to do nothing (which they are really good at 😉 ).

The advantage of using Free markets is that:

  • It is the most efficient way known to us
  • Its faster than government initiated action
  • It involves incentives to people rather than asking them to take action coz of their conscience

In Short Free market is better coz it relies on Consent not Coercion.

Therefore, I feel that free markets should work in this scenario and they are the way forward if we have to fight climate change. What do you think?