Chapter 6: THE PRICE OF CARBON
The nation that leads the clean energy economy will be the nation that leads the
- Barack Obama, State of the Union address January 27, 2010.
The concept of global warming was created by and for the Chinese in order to make US manufacturing non‐competitive.
- Donald J. Trump, Twitter, November 6, 2012.
In economics, a “negative externality” or “spillover effect” is defined as a cost borne
by a third party outside of a transaction. An example of a transaction with a nega‐
tive externality would be the sales of chlorofluorocarbons, such as Freon, for use as
refrigerants or aerosols. These compounds will accumulate in the stratosphere and,
upon exposure to ultraviolet radiation, breakdown to release highly reactive chlorine.
Chlorine, in turn, will react with ozone and disrupt the integrity of the ozone layer.
Unrestricted passage of mutagenic ultraviolet radiation through a hole in the ozone
layer will increase the incidence of cancer among terrestrial life forms. The health
costs of unregulated sales of Freon were not part of transaction between the chemical
manufacture and the customer, and this negative externality would be incurred by third
parties exposed to carcinogenic UV radiation. As the science of chlorofluorocarbon
reactions in the upper atmosphere advanced, the dangers of continued use of these
compounds came into focus. In 1989, the Montreal protocol came into effect whereby
world governments agreed to the implementation of an international treaty to phase
out the use of chlorofluorocarbons.
An important role of government is to make full use of the expertise of the scientific
community in assessing the risks and benefits of industrial and consumer practices.
When appropriate, responsible governance requires the implementation of measures
to protect citizens and ecosystems from the harmful effects of negative externalities
from transactions that, in the absence of intervention, would continue unabated.
Excess emissions of GHGs over the next 20–30 years will result in a deferred negative
externality in that the costs of surface warming will be largely incurred by subsequent
generations during the second half the century.