Due to climate destabilization, companies worldwide are trying to reduce their carbon emissions. This article states that the Kyoto Protocol has not influenced countries enough so carbon emissions are still very high. The US is willing to reduce their emissions only if other countries are doing it too since otherwise they would be at a disadvantage. Due to this there should be international regulations followed by all, which states laws about carbon emissions.
Carbon emissions worldwide are not decreasing in a rate which would help our environment, and therefore countries have to agree new regulations. Currently the carbon emissions which are produced and consumed are a market failure. A market failure is when a market fails to be allocative efficient or is under/over allocating its resources. In this case the market failure is a negative externality of production. The term negative externality means that there is harmful effect on a third party due to consumption or production of a good or service. The third party in the case of carbon emissions could be the people who inhale toxic air or the animals which are affected by global warming. The Kyoto Protocol was supposed to make sure that pollution decreased, it is not working because America and Australia never agreed to the terms.
The graph shows that the MSC (the cost of society to produce the certain good) is above the MPC which means that there is a negative externality. The MPC is the cost that the company has to pay to produce the good. The best thing would be if the MPC=MSC, since then there would be no externalities. The welfare loss is created because the private firm is externalizing its cost on a third party, which is the society.
Barack Obama agreed to cut emissions if other countries are willing to do the same. However, China has said that they are already decreasing their emissions and they do not want to follow the lead of the USA. So, the US had the idea of taxing the goods that come from China, this would increase the price for the consumer but also make it more expensive for China. China responded by saying “Climate change and charging carbon taxed in imports…are two issues in two areas.” Perhaps if the US taxed Chinese goods and services the marginal private cost (MPC) would move closer to the social optimum place. This is because China isn’t willing to cut down their carbon emissions and if the US taxes them, there would be a higher cost for the goods and services.
The main conflict is that China thinks that US is only taxing their goods and services due to “protectionism”. This means that the US is protecting domestic industries from foreign industries. China said that US is putting on tax to find an excuse to make Americans buy their domestic goods and not China’s goods. Another problem with taxing goods and services is that it can be argued that taxing goods do not reduce emissions. Since taxing does bring along some problems it might not be the most sufficient and best idea.
The carbon emission problem is an international problem because it affects all countries. However, the biggest difficulty is to make all nations sign the solution and make them believe that if they reduce their carbon emissions it will benefit them. A solution would be to do negative advertisement. This means that there would be advertisement which would point out what happens if firms continue to release toxic fumes. The Kyoto Protocol did not work since the US and Australia never ended up getting the agreement confirmed, and therefore most countries did not meet the requirement set by the UN. A good solution for the future would be to make another protocol to reduce carbon emissions every 2 years and to set a limit of carbon emissions. However, this would also be a problem because people might sign the contract but no one knows if they would follow it through. Therefore, the UN should make sure that all countries are doing what they promised to do.
