[The editors of the Bulletin of the Atomic Scientists repeat the view, articulated in greatest detail by the Stern Report, that climate change is a massive market failure. They conclude that relying on the market to sort out the details of our response is shortsighted. -jlt]
the cost of carbon dioxide
emissions, measured as damage to the biosphere, has not been factored into the price of energy.
Climate change is the result of a colossal market failure. At least, that is one way to view the unimpeded dumping of carbon dioxide into Earth’s atmosphere. In the case
of climate change, the cost of carbon dioxide emissions, measured as damage to the biosphere, has not been factored into the price of energy. The failure to account
for these hidden costs encouraged the overuse of carbon-emitting technologies and has led ultimately to the market failure known as global warming.
When markets fail, government institutions often intervene to bail out those companies that face dissolution, as we have seen most recently in U.S. credit markets. Government prevents the market from collapsing completely and staves off even greater losses of jobs, earnings, and livelihoods by providing loans to keep firms in business and by establishing new rules to restructure the industry, with an eye to averting even greater future failures.
Given the enormity of the market failure that has resulted in climate change, one might expect government institutions, with their mandate to serve the greater public good, to intervene to cope with the waste products of fossil fuel–based energy production. For example, the U.S. federal government could step in to increase funding for research and development of technologies that don’t contribute to climate change, and help bring new solar, wind, and nuclear technologies
to market more quickly. Using public money to restructure the energy market could save the biosphere and prevent further climate change.
Instead, government officials talk of finding market solutions to reduce greenhouse gas emissions without seriously considering substantial public investment in developing new energy sources. During the past 30 years, federal government expenditures for research and development in energy have declined and, at $3 billion in 2007, are less than half what they were in 1978, in real terms. The greatest reductions were in nuclear and renewable sources—that is, the main supply-side alternatives to fossil fuels.
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