The externalities that define any economic system are those environmental, social, and health costs and benefits which the producers, consumers, or governments do not fully account for. It is a fundamental aspect of the concept of an economy to make sure these sorts of externalities are accounted for.
In micro-economics, these include:
– Indirect costs such as pollution and resource depletion
– Direct costs such as medical care and accidents.
– Side effects such as inflationary pressures due to spending on goods with essential effects on others.
For example: when we buy a car that pollutes the air, we do not pay to repair this pollution because it is not considered in our cost calculations. Therefore we are not taking into account the external costs to others.
Greenhouse gas emissions are an example of a negative externality in microeconomics. The greenhouse effect occurs when carbon dioxide and other gases emitted by human activity into the atmosphere trap radiant heat that would otherwise escape from Earth’s surface. The term greenhouse gases are applied because the gases are believed to act like the glass in a greenhouse, thereby preventing heat from escaping. When these emissions go untreated, it leads to a disruption of the normal climate cycle.
The causes of climate change have been debated for years now. It has been argued that climate change is caused either by natural processes or anthropogenic factors. Many scientists believe that the causes of climate change are entirely manufactured. Greenhouse gas emissions have been proposed as one of the main reasons for climate change.
The economic value of “greenhouse gases” arises from the fact that greenhouse gases are part of a negative externality, where a private actor is imposing costs on other parties (the “public”) without their consent. The most important groups to whom the externality imposes costs are, in particular, future generations who may suffer from permanent damages due to inaction on emissions, and future generations because they will bear the costs through increased prices.
Negative externality: In economics, a negative externality is a cost imposed by an economic agent upon other agents without compensation or benefit to those affected. One of the overlooked externalities of production is that it increases carbon emissions. Carbon emissions are used to illuminate our homes, drive our cars, and perform many other tasks part of the modern-day. The increased carbon dioxide in the atmosphere is causing an increase in global warming and global climate change. These changes alter weather patterns and cause more violent storm events like hurricanes and tornadoes, which can damage infrastructures.
The companies that produce and use these products, like fossil fuels, are the ones who must take part in the costs associated with global warming. The production of these products uses up a lot of natural resources. Fossil fuels are non-renewable resources because they originate from plants and animals that used to be alive but are now extinct. As more fossil fuels are extracted and burnt as fuel, they become non-renewable while also contributing to pollution. The production process also adds other chemicals to the air, pollution but can’t be seen or smelled. This leads to acid rain, which damages trees and plant life, further destroying our environment. The more fossil fuels produced, the more carbon is put into the atmosphere, which leads to a tremendous increase in global warming and climate change.
In addition to this, there are also other effects of lead emissions from fossil fuel production. As with carbon dioxide, lead gas leaks out of vehicles and coal-fired power plants. This gas can be inhaled, which causes damage to the unborn fetus, or can be absorbed by food and water, causing children to grow up with learning disabilities or other health effects.
Carbon dioxide, methane, and nitrous oxide are the most significant contributors to global warming. It’s not just that these gases get released into the air from a car or factory; they’re also created when animals or decomposing produce release methane gas as they break down naturally. When people cut down trees in forests, it leaves them carbon-deprived, which means there are fewer trees to absorb carbon dioxide from our atmosphere, so it doesn’t just go away!
Each year increases in population and consumption create an increasingly more significant demand for energy sources that emit more greenhouse gases. So we must find ways to reduce the amount of pollution in our atmosphere because we’re creating more than our planet can naturally reabsorb right now it also affects the economy as shown in the graph below.
In conclusion, there are many benefits to reducing greenhouse gas emissions, such as helping with global warming and lowering the risk of extinction. Overall, greenhouse gas emissions are externalities in microeconomics, thus making it more difficult for people to protect themselves. Strategies should be implemented many strategies that reduce their initial effects. Those strategies include adaptation, relocation, and other methods that can help decrease the harm caused by climate change.
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Pearse, R., & & Böhm, S. (2014). Ten reasons why carbon markets will not bring about radical emissions reduction. Carbon Management,, 325-337.
Sunstein, C. R. (n.d.). Internalities, Externalities, and Fuel Economy., 2020.