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The Role of Government to Support New Ideas, Products and Industries that Can Substantially Reduce Pollution and CO2 Emissions

Executive Summary of Reducing Pollution And CO2 Emissions

Drastic changes in climate are creating challenges for all the countries across globe. In order to meet sustainable development goals, it has become essential for countries to take necessary steps to reduce carbon emissions. The report discusses the role of government in fostering technological innovations, protecting the emerging infant industries in order to reduce pollution and negative externality. Carbon emission is an externality that is not completely priced. The countries are trading carbon emissions so that a balance can be maintained. The emerging of renewable energy markets is a ray of hope. This report shows the carbon emission by various countries, carbon trading, infant industry protection, and government policies that promote the renewable sources of energy.

Table of Contents

Introduction.

Detailed analysis of countries emitting CO2.

Carbon Tax.

Carbon Trade and infant industry.

Subsidy to non-renewable sources and renewable source of energy.

New markets for renewable energy.

Conclusion and Recommendations.

Bibliography.

Introduction to Reducing Pollution And CO2 Emissions

A rise in global temperature is one of the most serious challenges that the world is facing right now. As a result, the role of innovations in technology to lower emission is gaining recognition; the countries are moving forward towards sustainable development and are performing activities to reduce carbon emissions. Consequently, the government is now focusing on externalities. Externalities can be understood as the effect of the industrial activity on the third party, the effect can be either negative or positive leading to incurring the cost or accruing benefits that are not reflected in the prices. When the cost is borne by the third party, this cost is not incurred by the producers and is not reflected in market price, this is a negative externality. Similarly, when the benefit is accrued to a third party, which is neither the consumer nor the producer of the good, and then it is a positive externality. Climate change as a result of CO2 emissions is a negative externality (Liu, Bauman & Chuang, 2019). This can be attributed to the fact that climate change is a global issue impacting all the countries, the effects are uncertain and cannot be quantified, there are no specific developed markets and in the years to come the cost of climate change will be borne by all the countries. 

The aim of this study is to understand the concept of externalities and its role in climate change, the role of government assistance by providing subsidies and protection as well as technological innovation to combat environmental pollution and emissions and evaluating the non-renewable markets that can reduce carbon emissions.

Detailed Analysis of Countries Emitting CO2

List of 15 Highest CO2 emitting countries

Rank

Country

Emissions in 2017 (Mt CO₂)

% of Global Emissions

1

 China

9,839

27.20%

2

 United States

5,269

14.60%

3

 India

2,467

6.80%

4

 Russia

1,693

4.70%

5

 Japan

1,205

3.30%

6

 Germany

799

2.20%

7

 Iran

672

1.90%

8

 Saudi Arabia

635

1.80%

9

 South Korea

616

1.70%

10

 Canada

573

1.60%

11

 Mexico

490

1.40%

12

 Indonesia

487

1.30%

13

 Brazil

476

1.30%

14

 South Africa

456

1.30%

15

 Turkey

448

1.20%

 Rest of World

10,028

27.70%

Source: Visual Capitalists, 2019

Based on the table, the pie chart diagram is shown below:

Overall, only 15 countries generate approximately 72% of the carbon emissions; however, the rest of the world contribution is approximately 28%. China is the highest CO2 producing country in 2017, followed by the United States and India.

Carbon Tax

According to the Intergovernmental Panel on Climate Change (IPCC) (2014), in order for countries to restrain the globe from being warm by less than 2°C, the world has to make amends so that the net emissions is zero prior to the end of the 21st century. Putting a price on carbon will help countries to achieve this goal. There are various methods through which the government can put a price on carbon and reduce its emissions, these can be Domestic Emissions Trading Systems, specifically designed Carbon Tax as well as induce payments that comprise of the social cost of carbon (World Bank, 2014). 

Carbon Trade and Infant Industry

The United States and many other countries have showed a decline in domestic emissions in this decade, however, this decline has been canceled out by the increase in emissions by economies witnessing economic growth. Approximately 22% of the world’s carbon emission can be attributed to the production of goods that are imported to other countries (Hausfather, 2017). The Global CO2 imports and exports from trade in 2014 indicate that China tops the rank of net express, followed by Russia. The US is the biggest net importer of CO2.

Putting a tariff on imports will help to reduce the import of goods that emit high carbon emissions. Another important aspect of tariff is the protection of infant industry. Infant industries are characterized as the industries that operate at a smaller scale so they are unable to attain economies of scale; hence their average cost remains high. The infant industry can be protected by the means of subsidies. By providing subsidies to these industries, the government enables them to compete with the market giants. The infant industry plays an important role in developing new ideas in reducing the environmental pollution. In the developing countries, the management of environment becomes secondary when compared to the developed countries; this is due to the lack of innovation in technology used. The developed countries can invest more in development of technology that can foster the use of renewable energy; however, this is not the case with the developing countries.

Infant industries can play a huge role in protecting the environment by bringing new ideas and innovations. The smallest way can go a long way; however, the contribution of the government to develop these industries is of crucial importance. As per Guo, Xia, Zhang and Zhang (2018), government research and development funding will significantly boost technological innovation; the government can give a push to a green innovation by the means of subsidy, giving tax credits as well as patent protection. By the means of subsidy, the government can effectively give grants to the industries that promote green technology, hence encouraging positive externality.

Subsidy to Non-Renewable Sources and Renewable Source of Energy

In the World Trade Organization (WTO) Ministerial Conference, 12 of the WTO members signed a declaration to bring reforms in the fossil fuel subsidies (Buenos Aires, 2017). Fossil fuel subsidies promote wasteful consumption, does not allow usage of renewable energy along with it suppresses any development in energy efficiency. An effective fossil fuel subsidy has economic, social as well as environmental advantages. Fossil Fuel subsidy includes all the government actions or grants that caused a reduction in the cost of energy production using fossil fuels, it leads to a reduction in price that is paid by the consumers and increases the price earned by the producers (Oil Change International, 2017).

Fossil Fuel Subsidy database

Country

2018

2019

Change

Algeria

16,784.7

13,115.3

-3669.36

Angola

1,615.1

1,067.8

-547.25

Argentina

5,042.9

4,261.5

-781.42

Azerbaijan

2,921.6

1,909.0

-1012.63

Bahrain

416.5

771.1

354.52

Bangladesh

2,889.4

1,691.2

-1198.22

Bolivia

1,115.1

733.7

-381.47

Brunei

213.7

186.2

-27.51

China

50,949.5

30,481.0

-20468.49

Colombia

674.8

661.7

-13.04

Ecuador

3,657.1

3,003.3

-653.73

Egypt

28,331.1

15,837.6

-12493.55

El Salvador

458.1

330.4

-127.63

Gabon

120.0

117.6

-2.46

Ghana

167.7

147.5

-20.11

India

30,139.1

21,849.7

-8289.42

Indonesia

33,876.9

19,217.7

-14659.26

Iraq

8,520.9

7,431.3

-1089.65

Iran

77,626.1

86,095.5

8469.38

Kazakhstan

7,401.0

6,569.2

-831.78

Korea

73.4

55.8

-17.53

Kuwait

7,092.4

5,503.2

-1589.22

Libya

4,736.2

4,483.5

-252.69

Malaysia

2,050.9

1,811.6

-239.29

Mexico

14,512.9

3,283.8

-11229.10

Nigeria

3,107.8

1,765.5

-1342.32

Oman

124.3

107.3

-16.99

Pakistan

5,074.1

1,901.7

-3172.40

Qatar

2,169.2

510.7

-1658.52

Russia

36,535.8

24,065.1

-12470.70

Saudi Arabia

36,405.9

28,724.3

-7681.56

South Africa

4,344.0

-

-4343.98

Sri Lanka

339.4

482.6

143.20

Taipei

347.5

3.0

-344.50

Thailand

1,075.1

539.6

-535.52

Trinidad and Tobago

713.2

469.9

-243.25

Turkmenistan

4,866.3

3,067.2

-1799.03

Ukraine

4,195.2

2,179.7

-2015.45

UAE

9,454.6

5,692.7

-3761.84

Uzbekistan

8,066.0

4,421.9

-3644.10

Venezuela

18,879.9

12,776.3

-6103.58

Vietnam

612.1

270.2

-341.90

 Total

877413.03

637207.31

-240205.72

Source: International Energy Agency, 2020

In the year 2019, the world saw a decrease in the fossil fuel consumption subsidy by approximately USD 120 billion (International Energy Agency, 2020). Most of the countries witnessed a decline in year-on-year subsidy except Iran, Bahrain and Sri Lanka. Moreover, the average subsidy rate was 15%, thus a consumer needs to pay 85% of the value of the market price for the units of energy consumed (International Energy Agency, 2020).

Subsidies given to renewable sources of energy can promote the efficiency in this sector. There is an imbalance in the cost of externalities as well as the direct fossil fuels subsidies in 2017 (International Renewable Energy Agency, 2020). Subsidies provided to renewable power generation technology are limited to only 20% of the total energy sector subsidy, while 70% subsidy is provided to fossil fuel sector. The subsidy to renewable energy is extremely harmful while those provided to the renewable sources will be advantageous socially, economically and environmentally.

New Markets for Renewable Energy

Government policies have led to the development of energy markets over the years. The policies are instituted in such a way, so as to emphasize more on sustainable development; hence the focus is now on efficient use of energy and fostering the usage of clean modes of energy production. In order to meet the demand, countries are continuously working towards finding innovative ways to improve the technology. Improvements in technology suggest that other renewable sources of energy can be used to meet the energy demand. More eco-friendly methods can be put to use. According to International Energy Agency reports (2019), renewable power capacity is expected to increase by 50% from 2019 to 2024. Solar PV, Onshore wind, offshore wind, Hydropower, and Bio-energy are some sectors that will see growth. In this period, China is anticipated to account for 40% of the world’s renewable capacity expansion. The markets for solar PV systems in houses, buildings, and industry will witness a surge in this period.

Conclusion and Recommendations on Reducing Pollution And CO2 Emissions

The rising global temperature is a cause of concern for all the countries. Most of the countries across the world are trying to reduce their carbon emissions. The carbon emissions have a negative effect and it is important to quantify the effects of emissions. The cost of the externality must be borne by the producing party. In order to reduce carbon emissions, the countries are coming together to reduce the global temperature, thus they are trading carbon emissions. Not only the countries are importing and exporting goods but they are trading pollution too, but it also becomes important to put a price on carbon. In order to protect domestic infant industry from other market giants, the government is promoting infant industry and technological innovation. The government should not just focus only on the economic growth of the infant industry but also maintain a balance between growth and carbon emissions. The government should push the innovation in renewable energy sources; there are growing markets for Solar, Wind, Bio-energy and Hydropower energy. These markets have a bright future but it is subject to protection of these infant industries by the government, subsidies and innovations in this area.

Bibliography for Reducing Pollution And CO2 Emissions

Buenos Aires. (2017). MC11 ministerial declaration on fossil fuel subsidy reform. Retrieved from https://www.norway.no/en/missions/wto-un/our-priorities/trade/wto-world-trade-organization/mc11-ministerial-declaration-on-fossil-fuel-subsidy-reform/

Guo, Y., Xia, X., Zhang, S. & Zhang, D. (2018). Environmental Regulation, Government R&D Funding and Green Technology Innovation: Evidence from China Provincial Data. MDPI Journal, 10 (4), 940. https://doi.org/10.3390/su10040940

Hausfather, Z. (2017). Mapped: The world’s largest CO2 importers and exporters. Retrieved from https://www.carbonbrief.org/mapped-worlds-largest-co2-importers-exporters

Intergovernmental Panel on Climate Change. (2014). AR5 synthesis report: Climate change 2014. Retrieved from https://www.ipcc.ch/report/ar5/syr/

International Energy Agency. (2019). Renewable 2019: Market analysis and forecast from 2019-2024. Retrieved from https://www.iea.org/reports/renewables-2019

International Energy Agency. (2020). Energy subsidies:Tracking the impact of fossil-fuel subsidies. Retrieved from https://www.iea.org/topics/energy-subsidies

International Renewable Energy Agency. (2020). Energy subsidies, evolution in the global energy transformation to 2050. Retrieved from https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2020/Apr/IRENA_Energy_subsidies_2020.pdf

Liu, C. J., Bauman, Y. & Chuang, Y. (2019). Climate change and economics 101: teaching the greatest market failure. MDPI Journal, 11(5), 1340. Doi:10.3390/su11051340 

Oil Change International. (2017). Fossil fuel subsidy overview. Retrieved from http://priceofoil.org/fossil-fuel-subsidies/

Visual Capitalists. (2019). All the world’s carbon emissions in one chart. Retrieved from https://www.visualcapitalist.com/all-the-worlds-carbon-emissions-in-one-chart/

World Bank. (2014). Statement, Putting a Price on Carbon. Retrieved from https://www.worldbank.org/en/programs/pricing-carbon#Statement

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