December 4, 2007
Global warming and financial incentives
Since global warming appears to be such a huge and intractable challenge, it is comforting to think there are lots of things that individuals and businesses can do to reduce greenhouse gas emissions that would also save them money.
With this in mind, I rose early this morning to attend a briefing in New York by the Conference Board and McKinsey & Co on their joint report on how the US can reduce its greenhouse gas emissions between now and 2030 in an affordable manner.
The good news was how many gigatonnes (1bn tonnes) of future carbon dioxide emissions could be saved by simple cost-saving measures such as installing energy-efficient lighting and heating systems in homes and offices.
The report calculates that about half the measures needed to reduce emissions in the US by between 3.5 and 5.2 gigatonnes a year by 2030 actually have a negative cost - not only would they be good for society but they make financial sense.
The bad news is that the price signal - the fact that, for example, it saves you money to install compact fluorescent light bulbs in your home - does not always work.
People often resist paying more money initially in return for longer-term savings. They do not take enough account of the fact that the additional cost of a compact fluorescent light bulb, or loft insulation, or a fuel-efficient car, will eventually be more than offset by fuel savings.
Another problem is that the horizon of the individual or business making the purchase decision tends to be shorter than the lifetime of the device itself. If a purchaser intended to keep a car for its full 12 to 14 year lifetime, it would increase his or her incentive to buy a hybrid or a fuel-efficient vehicle. But most people sell their vehicles after three to five years.
Similarly, house builders have limited incentives to construct energy-efficient buildings because they do not gain financially from the investment. Instead, it is the home-owner who benefits.
It struck me that it would be pretty hard to construct regulations or financial incentives to address such perverse incentives effectively over decades. On the other hand, the US and other countries had better start trying.
It is imperative for developed countries to own the phenomenon of environment friendliness as part of their DNA. By adopting it themselves, they will be in a better position to bargain with the developing countries in order to enforce the same policies on to them. The developing countries being constrained by limited resources & funds, and an even alarming rates of health and environmental hazards face an even greater challenge! It’s high time that the policies get adopted at the right levels and then become universal bindings on the rest of the world.
Posted by: Afsheen Bashir Ali | December 5th, 2007 at 6:55 am | Report this comment[…] “US and other countries had better start trying.” Posted on 6/5/2008 2:22 PM by TrishFrom his blog: […]
Posted by: John Gapper - Is global warming a problem that humans must take actions to address? | June 5th, 2008 at 7:22 pm | Report this comment