Is global warming a market failure?

[mrswdk]

This thread is not for discussing whether or not global warming is humanity destroying its home or a fictional phallusy put about by Al Gore. Save that for the other global warming thread.

In this thread, let's treat global warming as a brain game: we will assume it exists and that it is man-made, but only for the purpose of discussing a different issue. So from now on, global warming exists and it is being caused by humanity's emissions.

What I want to know is: does global warming constitute a market failure? If so then what are the efficiency gains that can be made by switching to alternative sources of fuel/energy, and how are they big enough to make up for the financial cost? Are there any awesome cost-benefit analyses of global warming that you know of?

[oVo]

Global warming isn't Al Gore's invention and it isn't exclusively
caused by human activity. With so much infrastructure already
in place cashing in on carbon fuel use, it will take some time
before more renewable resources are used.

People on the coasts will likely be knee deep in water
before they take the climate change seriously.

Market failure? Change is a hard sell and until people's daily
routines are affected the general public won't focus on it.

[_sabotage_]

Is global warming a market failure?

By definition, yes. If negative externalities are not included in the cost of production, then it is failing the market. It is comparable to not take the cost of nuclear wastew into the equation on nuclear energy.

Thorium provides a much more efficient form of nuclear energy than does uranium, because it is much more abundant, it can be fully used in the cycle, has a much easier form of waste management, is scalable, and non-polluting. It is also relatively cheap to set-up. A working plant was set up by ORNL in the sixties and ran for ten years on $1b.

Building with green technology will also greatly reduce energy requirements. An architect in Thailand decreased air conditioning requirements by more than 90% by simply setting up a system where a drop of water fell at a set rate into the air intake, which greatly increases the cooling effect. In south-east Asia, this could be huge. According to the economics/history professor at Harvard, air conditioning in Asia could ruin the planet, but with this system embedded into new construction, the problem will dissipate. Of course it is not being done.

Solar gains/shading could eliminate most of the energy requirements if construction were built with green materials. Traditionally, all houses around the world took into account the sun and were built accordingly. These days we tend to block out the sun's warmth in winter and let its heat in in summer, which is the height of tomfoolery. It would appear almost as if the builders were working for the energy companies.

Once building energy is reduced we can look to infrastructure requirements. A lot of our energy is just shipped around like a joke. England imports about as much coal as they export. Nova Scotia exports its natural gas and imports oil. And just about all manufactured goods are imported. In a farming area in Canada, the average food item travels 1600 miles to reach a plate. In the typical construction, there are seven layers to a building envelope, requiring an international infrastructure. Meanwhile, we have better material which gain be produced anywhere, requires a single layer and reduces energy requirements to zero in the building and lifetime of the building.

We have and have had much better solutions for fueling our transportation needs for a long time. The first cars were all electric, we've had compressed air cars, diesel cars operate at the same mpg as hybrids but last longer and use more common materials.

In just about everything, we could do a lot better. But then we would save, and when every individual saves, the market loses. And therefore we will not see these things.

The reason that global warming marketing is failing is because it is meant to.

[khazalid]

it is and it isn't. one of the critiques of the system is that it doesn't properly evaluate / monetise things like the carbon sink of large forests. the amazon is worth many billions to humanity but it has no implicit value in a free market until we arbitrarily assign it one.

[oVo]

There is obviously a monetary value to the industry that cuts it down and the civilized people who displace the indigenous residents of the region.

[thegreekdog]

it is and it isn't. one of the critiques of the system is that it doesn't properly evaluate / monetise things like the carbon sink of large forests. the amazon is worth many billions to humanity but it has no implicit value in a free market until we arbitrarily assign it one.

It does have a value in the free market. It's currently valued at zero.

Global warming is not a market failure. People have made a decision that the cost of global warming is zero (or very low) such that they make purchasing decisions where global warming is not a factor or is a factor outweighed by other factors.

To use a different example, for the most part we purchase organically and locally grown fruits, vegetables, and milk. We pay between 25% and 100% higher dollar costs for these items because we've placed a value on organically and locally grown products that exceeds the additional price we pay for such products.

There seems to be at least a large minority of people in the United States (I can't speak for other countries) who think global warming is problematic enough such that they incessantly talk about it and want to make others' lives more difficult. I think if you examine those people's spending habits, you'll find that they don't actually value global warming enough to affect their purchasing decisions. So is that a failure of the market or a failure of the purchasers (or, as I like to call them, flaming hypocrits).

[mrswdk]

Consumers deciding not to factor global warming into their individual consumption habits does not mean that global warming has no real value when determining the efficiency of our current system.

[thegreekdog]

Consumers deciding not to factor global warming into their individual consumption habits does not mean that global warming has no real value when determining the efficiency of our current system.

You're restating your conclusion without providing any reasoning. Why does global warming have real value when determining the efficiency of our current system when its cost is not taken into account by the people participating in the market?

[AAFitz]

it is and it isn't. one of the critiques of the system is that it doesn't properly evaluate / monetise things like the carbon sink of large forests. the amazon is worth many billions to humanity but it has no implicit value in a free market until we arbitrarily assign it one.

It does have a value in the free market. It's currently valued at zero.

Global warming is not a market failure. People have made a decision that the cost of global warming is zero (or very low) such that they make purchasing decisions where global warming is not a factor or is a factor outweighed by other factors.

To use a different example, for the most part we purchase organically and locally grown fruits, vegetables, and milk. We pay between 25% and 100% higher dollar costs for these items because we've placed a value on organically and locally grown products that exceeds the additional price we pay for such products.

There seems to be at least a large minority of people in the United States (I can't speak for other countries) who think global warming is problematic enough such that they incessantly talk about it and want to make others' lives more difficult. I think if you examine those people's spending habits, you'll find that they don't actually value global warming enough to affect their purchasing decisions. So is that a failure of the market or a failure of the purchasers (or, as I like to call them, flaming hypocrits).

It is absolutely not a market failure. The market does not care about life or death. It only cares about money. Its only goal is profit as it is a financial being. Its why it cannot be trusted to protect life, because life has no essential value.

Its why the market cannot be trusted when deciding whether to use toxic chemicals, lead paint, asbestos, hazardous waste disposal, etc, etc, etc. The market will always move first to the option that makes money in the short term and always will. The only way to control such hazardous operations of the market is a good regulation body that is unbiased, and not corrupt.

The problem is the unbiased and corrupt is tough to achieve, and our current system has eliminated the many protections meant to even have a chance at achieving one.

[AAFitz]

Consumers deciding not to factor global warming into their individual consumption habits does not mean that global warming has no real value when determining the efficiency of our current system.

You're restating your conclusion without providing any reasoning. Why does global warming have real value when determining the efficiency of our current system when its cost is not taken into account by the people participating in the market?

Because the people are uneducated, and the market has devoted billions to insuring they stay that way.

[Metsfanmax]

Consumers deciding not to factor global warming into their individual consumption habits does not mean that global warming has no real value when determining the efficiency of our current system.

You're restating your conclusion without providing any reasoning. Why does global warming have real value when determining the efficiency of our current system when its cost is not taken into account by the people participating in the market?

Because those people participating in the market, as well as those who aren't, will eventually have to pay that cost. It is the textbook definition of a negative externality.

[thegreekdog]

It is absolutely not a market failure. The market does not care about life or death. It only cares about money. Its only goal is profit as it is a financial being. Its why it cannot be trusted to protect life, because life has no essential value.

Its why the market cannot be trusted when deciding whether to use toxic chemicals, lead paint, asbestos, hazardous waste disposal, etc, etc, etc. The market will always move first to the option that makes money in the short term and always will. The only way to control such hazardous operations of the market is a good regulation body that is unbiased, and not corrupt.

The problem is the unbiased and corrupt is tough to achieve, and our current system has eliminated the many protections meant to even have a chance at achieving one.

Death and destruction tend to have a negative effect on profits in most industries.

Because the people are uneducated, and the market has devoted billions to insuring they stay that way.

Most people seem to know enough about climate change to affect voting habits, so I don't agree.

Because those people participating in the market, as well as those who aren't, will eventually have to pay that cost. It is the textbook definition of a negative externality.

That seems like a problem with the people in the market, not the market itself.

[mrswdk]

An efficient market would compensate for human short-sightedness if that short-sightedness leads to inefficiencies.

[AAFitz]

It is absolutely not a market failure. The market does not care about life or death. It only cares about money. Its only goal is profit as it is a financial being. Its why it cannot be trusted to protect life, because life has no essential value.

Its why the market cannot be trusted when deciding whether to use toxic chemicals, lead paint, asbestos, hazardous waste disposal, etc, etc, etc. The market will always move first to the option that makes money in the short term and always will. The only way to control such hazardous operations of the market is a good regulation body that is unbiased, and not corrupt.

The problem is the unbiased and corrupt is tough to achieve, and our current system has eliminated the many protections meant to even have a chance at achieving one.

Death and destruction tend to have a negative effect on profits in most industries.

I would say that is not true, and could argue death and destruction actually fuel most markets.

Certainly not true in the long run or extreme long term. The market is only concerned with a very short time period, because all of the players only have a short time period in which to live. Sure, some actually care about the future of humanity, but in this case, you are more or less proving that you are not one of them.

Because the people are uneducated, and the market has devoted billions to insuring they stay that way.

Most people seem to know enough about climate change to affect voting habits, so I don't agree.

They don't know about climate change, beyond knowing its something that others know quite a bit about. They are completely uneducated about the actual facts of the matter and simply believe the lies of those who dont understand it at all. Suggesting voting habits determine education about a subject is just silly.

[Metsfanmax]

Because those people participating in the market, as well as those who aren't, will eventually have to pay that cost. It is the textbook definition of a negative externality.

That seems like a problem with the people in the market, not the market itself.

It is most certainly a problem with the market itself. For any individual, it is a rational choice to purchase the cheapest form of energy available. That individual's contribution to global warming is vanishingly small so it is not easy to claim that they are wrong to purchase the energy. Conversely, energy providers are not going to voluntarily raise prices and donate the extra revenue to FEMA -- they would go out of business. It is not easy to envision a scenario where the correct price on carbon is established without it being mandatory.

There are some problems related to irrational individual actors -- many of them could actually save money in the long run by making energy-efficient choices such as a home retrofit or buying a Prius. Smart economic policy has to accommodate for that irrationality. But the larger problem -- fossil fuels being cheap and so people buy them -- is a problem of rational choice.

[AndyDufresne]

The real answer here, is dilithium crystals.


--Andy

[AAFitz]

The real answer here, is dilithium crystals.


--Andy

Apparently youve never heard of dilithium crystal meth.

[AndyDufresne]

The real answer here, is dilithium crystals.


--Andy

Apparently youve never heard of dilithium crystal meth.

--Andy

[AAFitz]

Consumers deciding not to factor global warming into their individual consumption habits does not mean that global warming has no real value when determining the efficiency of our current system.

You're restating your conclusion without providing any reasoning. Why does global warming have real value when determining the efficiency of our current system when its cost is not taken into account by the people participating in the market?

You are trying to suggest that he is defending the current system, which he clearly is not. He is instead suggesting that there indeed is a massive cost to global warming, that a free market would certainly not fix it, and would arguably only make it worse, and that the current system is also ineffective as well.

[AAFitz]

The real answer here, is dilithium crystals.


--Andy

Apparently youve never heard of dilithium crystal meth.

--Andy

I stand corrected.

[thegreekdog]

Because those people participating in the market, as well as those who aren't, will eventually have to pay that cost. It is the textbook definition of a negative externality.

That seems like a problem with the people in the market, not the market itself.

It is most certainly a problem with the market itself. For any individual, it is a rational choice to purchase the cheapest form of energy available.

Let's stop there because this is the question being asked. Is the cheapest form of energy available the type of energy that negatively affects climate change? Are you using the term "cheapest" as it applies to dollars and not as it applies to dollars + other factors (like climate change)?

It is rational for someone to purchase the cheapest form of energy available if that person is appropriately weighing the cost of climate change? I say no. And I blame the person, not the market.

By the way, your continued insistence that individuals cannot change the market is just absurd. Yes, one individual cannot make a great difference. Multiple individuals can. Groups of individuals can. It happens on a daily basis. How does the organic food market succeed? How does any purchase of wind power or solar power succeed? How do iphones succeed? Does the government pass a law stating "you must purchase iphones / organic food / wind power and solar power"?

[thegreekdog]

Consumers deciding not to factor global warming into their individual consumption habits does not mean that global warming has no real value when determining the efficiency of our current system.

You're restating your conclusion without providing any reasoning. Why does global warming have real value when determining the efficiency of our current system when its cost is not taken into account by the people participating in the market?

You are trying to suggest that he is defending the current system, which he clearly is not. He is instead suggesting that there indeed is a massive cost to global warming, that a free market would certainly not fix it, and would arguably only make it worse, and that the current system is also ineffective as well.

I don't know if he's defending the current system (I don't think he is). I'm not defending the current system; in fact, I think the biggest impediment to the market adjusting for climate change is the current system. Regulation of public utilities and our tax system (which incentivizes certain industries at the expense or indifference of others) work to limit how the free market can effectively account for climate change. Further, the insistence that the government should be or is the only body to slow or stop climate change also negatively affects how the market can operate. If you're going to wait for someone to give you some fish and that person keeps telling you that you'll get a fish, chances are you aren't going to go grab a fishing pole and do it yourself.

[AndyDufresne]

If you're going to wait for someone to give you some fish and that person keeps telling you that you'll get a fish, chances are you aren't going to go grab a fishing pole and do it yourself.

I like folksy TGD.


--Andy

[BigBallinStalin]

What I want to know is: does global warming constitute a market failure? If so then what are the efficiency gains that can be made by switching to alternative sources of fuel/energy, and how are they big enough to make up for the financial cost? Are there any awesome cost-benefit analyses of global warming that you know of?

No, not by a large part once we consider government's role in the market. Governments subsidize many businesses and create inefficiencies through protectionist policies (which creates waste). Government courts repeatedly fail in upholding people's property rights from pollution, and government-owned streets constantly fail in encouraging lesser traffic, thus less pollution. Central banks engage in expansionary monetary policy which tends to drop interest rates thereby spurring on more investment in the short-term (which creates misallocations of resources, thus more waste).

Government has a great legacy in being the primary driver of causing markets to produce/waste more than what societies demand. Ironically, many people look to the very same institutions for a solution to a series of problems which was caused by government.


Efficiency gains of alternative sources of energy? How about the gains in efficiency from signficantly deregulating the electricity energy? The monopoly ratebase regulation rewards investment but not consumer demand, so we end up with more power plants and more idle capacity than needed. It's all very wasteful. As for alternative sources, I haven't seen much in terms of efficiency--but it's been 3 years since then. I have however seen plenty of bunk science in support of it.


I have only seen one interesting cost-benefit analysis of global warming which concluded that it would cost the US government roughly $20 billion over 20+ years to handle the worst-case scenario of GW. Unfortunately, it's only a 25 minute presentation, but the paper is somewhere in this link:
(See: Panel 3 video. http://www.cato.org/events/dangerous-world-threat-perception-us-national-security).

Aside from that, I haven't seen any impressive cost-BENEFIT analysis. It's nearly all Cost analysis, which is really stupid.

[AAFitz]

Consumers deciding not to factor global warming into their individual consumption habits does not mean that global warming has no real value when determining the efficiency of our current system.

You're restating your conclusion without providing any reasoning. Why does global warming have real value when determining the efficiency of our current system when its cost is not taken into account by the people participating in the market?

You are trying to suggest that he is defending the current system, which he clearly is not. He is instead suggesting that there indeed is a massive cost to global warming, that a free market would certainly not fix it, and would arguably only make it worse, and that the current system is also ineffective as well.

I don't know if he's defending the current system (I don't think he is). I'm not defending the current system; in fact, I think the biggest impediment to the market adjusting for climate change is the current system. Regulation of public utilities and our tax system (which incentivizes certain industries at the expense or indifference of others) work to limit how the free market can effectively account for climate change. Further, the insistence that the government should be or is the only body to slow or stop climate change also negatively affects how the market can operate. If you're going to wait for someone to give you some fish and that person keeps telling you that you'll get a fish, chances are you aren't going to go grab a fishing pole and do it yourself.

Ok, now you are just avoiding the entire discussion. The point here is more that if fish are the only thing to eat, poisoned or not, you have almost no other choice but to eat them. And when the market has so much power that it essentially makes it impossible to eat anything other than the poisoned fish, you will do just that because dying in the future, even horribly, is still more attractive than dying today.

Arguing that a free market will solve such issues is flawed fundametally as I explained because it simply only cares about commerce and not the consequences of it.

It is you that is fishing here, Im afraid, and avoiding the entire logic of human nature, and the obvious truth of the situation. Instead of suggesting that a group of greedy humans only trying to generate wealth will somehow magically work towards stopping a threat that it has unwittingly created, and since spent billions to continue against all scientific and reasonable logic, is in itself flawed. It is actually quite clear at this stage that only a government, or group of people outside the direct influence of the market could insure against such calamity as the market has proven, time and time again, that it is perfectly happy to pursue profitable endevours that end in death and destruction on a regular basis.

To ignore the past sins of the market is to ignore history, and ultimately in this case, not so much repeat it, as erase it.