FACULTY OF BUSINESS AND LAW

DEPARTMENT OF ECONOMICS, POLICY, AND INTERNATIONAL

BUSINESS

COURSEWORK ASSESSMENT SUBMISSION ON THE POLITICAL ECONOMY

OF CLIMATE CRISIS

ESSAY ON MARKET-BASED SOLUTIONS SUCH AS CARBON MARKETS

REPRESENT THE BEST POLICY STRATEGY FOR TACKLING THE CLIMATE
CRISIS

SUBMITTED BY:

ADEBAYO HAROUN SANNI

STUDENT I.D: 22551078

17TH May, 2023

Table of Content:
Introduction

 Climate Crisis
 Causes of the Climate Crisis
 Impacts of the Climate Crisis

Theoretical Debate

 Market Liberalism
 Institutionalism
 Bio-Environmentalism
 Social Green

Examples of Market-Based Solutions to Climate Crisis

Conclusion

References
Assessment Task:

“Market-based solutions such as carbon markets represent the best policy strategy for
tackling the climate crisis”. Discuss.

Introduction:

The climate crisis has emerged as one of the most pressing challenges of our time as humans
on planet earth and the present situation of climate crisis demands an effective and
comprehensive policy strategies to tackle the crisis. There has been a lot of proposal brought
forward by different scholars to mitigate the effect of climate crisis on our planet without
any negative impact on the political and economic systems in place. Examples of some of the
proposed market-based solutions is Implementing carbon pricing mechanisms, such as
carbon taxes and cap-and-trade systems, which is a widely endorsed proposal to reduce
greenhouse gas emissions (Sterner, 2019). Carbon pricing was proposed to internalize the
costs of carbon pollution, encouraging businesses and individuals to adopt cleaner
technologies and practices.

Another market-based solution which was proposed is the issuance of green bonds and
promoting sustainable investments which can drive capital towards climate-friendly projects
suggested by Bollen et al. (2020). Bollen et al. (2020) advocated for green bonds finance
initiatives that reduce emissions, promote energy efficiency, and support renewable energy
infrastructure across all sector of economic activities and lastly another market-based
solution which most of us are familiar with is the eco-labelling and certification schemes
which provides consumers with information about the environmental footprint of products
that we purchase and consume and those eco-labelling packages encourages sustainable
purchasing choices (Ansari et al. 2020). This eco-labelling initiatives creates market
incentives for companies to adopt environmentally friendly practices throughout their
supply chains.

With the above-mentioned solutions and initiatives being said, I can’t ignore some of the
root causes of climate crisis in modern times and I would like to outline my understanding of
climate crisis and its causes as follow.

Climate Crisis

Climate crisis can be described as the urgent and escalating threat posed by human-induced
activities such as industrial pollution, waste pollutions, and cardon emission from vehicles on
the environment. These human activities have a far-reaching impact on the planet's
ecosystems, societies, and economies and the major threat of climate crisis caused by
humans is the rapid rise in global temperatures, which results in widespread and disruptive
changes to weather patterns, rise in sea-level, and the loss of biodiversity.

Causes of the Climate Crisis:

The climate crisis primarily arises from human-induced activities, which I described above
and the main human activities with significant carbon footprint impact are the burning of
fossil fuels, deforestation, and industrial processes, according to the Intergovernmental
Panel on Climate Change (IPCC, 2018). These human activities which was identified by IPCC
mainly releases greenhouse gases (GHGs) such as carbon dioxide (CO2), methane (CH4), and
nitrous oxide (N2O) into the atmosphere, thereby trapping heat and resulting in global
warming.

Impacts of the Climate Crisis:

The consequences of the climate crisis are multifaceted and severe. The rise in global
temperatures in the last three decades are causing more frequent and intense extreme
weather events such as heatwaves, hurricanes, and droughts. Also, the change in
precipitation patterns is adversely disrupting agriculture through flooding and droughts,
which threatens food security, and exacerbate water scarcity issues according to Wheeler., et
al. (2020). Another major issues of rise in sea-level imperils coastal communities and
ecosystems, thereby amplifying the risk of flooding and coastal erosion (Hauer et al. 2019)
and lastly, health impacts as a result of climate change are also notable when we talk about
the increased exposure to heatwaves leading to heat-related illnesses and higher mortality
rates, particularly among vulnerable populations (Watts et al. 2019).

Theoretical Debate of “Market-based solutions such as carbon markets represent the best
policy strategy for tackling the climate crisis.

I am of the opinion that Worldviews on environmental issues represent different

perspectives on the relationship between humans and the environment. These views on the
environment shape individuals' attitudes, values, and beliefs regarding environmental issues
and influence both personal and policy approaches towards the environment.

The four prominent environmental worldviews are market liberalism, institutionalism, bio-
environmentalism, and social green. I will explore each of these worldviews in more details
with the intention of shaping my argument towards which of the environmental worldview
that I align with.

Market Liberalism:

Market liberalism, also known as neoliberalism or free-market environmentalism, places

more emphasis on the role of free markets and individual property rights in environmental
governance (Woods, 2017). Market liberals argue that the market mechanisms, such as
pricing environmental goods and services, can efficiently allocate resources and incentivize
environmental stewardship and market liberals also firmly believe that economic growth and
technological innovation, driven by market forces, can address environmental challenges
without excessive government intervention.
Institutionalism:

Institutionalism focuses on the role of institutions, norms, and governance structures in

environmental management (Ostrom, 2015). The Institutionalists argue that effective
environmental governance requires strong institutions that can facilitate collective action,
regulate resource use, and foster cooperation among stakeholders, and they also emphasize
the importance of institutional design, adaptive management, and the involvement of local
communities in decision-making processes.

Bio-Environmentalism:

Bio-environmentalism, or deep ecology, is an ecological and holistic worldview that places

intrinsic value on all living beings and ecosystems (Devall and Sessions 1985). The bio-
environmentalists advocate for a radical shift in human attitudes and behaviours,
emphasizing the need to recognize the interconnectivity of nature and promoting
biodiversity conservation. They often critique anthropocentric views and advocate for a
more harmonious and sustainable coexistence with the natural world.

Social Green:

Social green, also known as ecological socialism or eco-socialism, integrates environmental

concerns with social justice and equality (Eckersley, 2004). The social greens argue that
environmental degradation is deeply intertwined with capitalist systems that prioritize profit
over sustainability and social welfare. They call for transformative changes to economic
structures, emphasizing the need for ecological sustainability, equitable distribution of
resources, and participatory decision-making processes.

I would like to point out that these environmental worldviews are not mutually exclusive,
and individuals may hold a combination of perspectives, however my thoughts tend to align
more with the views of the social greens. It is obvious that market liberalism and social
greens represent contrasting perspectives on the relationship between the economy, the
environment, and social well-being due to the fact that market liberalism, emphasizes free-
market principles, contends that economic growth and technological innovation, driven by
market forces, can effectively address environmental challenges and it also argues that
market mechanisms, such as pricing environmental goods and services, can incentivize
environmental stewardship without excessive government intervention. I am of the school
of thought that market liberalism prioritizes climate-friendly economic activities which end
goal is to benefit the society as a whole with sustainable economic policies which reduces
the damage done to the environment without completely shutting down businesses or the
entire economy just to protect the environment.

On the other hand, social greens advocate for an ecological socialist approach that
integrates environmental concerns with social justice and equality. The Social greens argues
that addressing environmental issues requires transformative changes to economic
structures and social greens also emphasize the need for ecological sustainability, equitable
distribution of resources, and participatory decision-making processes. I disagree with the
views of social greens on the market-based approach as inadequate in addressing systemic
issues, such as wealth disparities and the commodification of nature because I have seen so
many examples of failed socialist policies implemented by some countries, such as
Venezuela, Cuba, Bolivia etc which have damaged the economic systems of the countries I
mentioned above.

The debate between the worldviews of market liberalism and social greens is based on
whether market forces alone can ensure environmental sustainability and social well-being
or if a more fundamental transformation of economic and social systems is required. Market
liberals emphasize the efficiency of free markets, while social greens stress the need for
social and ecological justice. Finding a balance between economic growth, environmental
protection, and social equity remains a key challenge in the pursuit of sustainable
development. My alignment with the worldviews of the market liberals is based on my ‘’Free
Market’’ thoughts and I also believe that economic growth and technological innovation,
driven by market forces, can address environmental challenges without excessive
government intervention.

Examples 1 of Market-Based Solutions to Climate Crisis

The European Union Emissions Trading System (EU ETS) is one prominent example of a
market-based solution to climate crisis is the European Union. The EU ETS is the world's
largest international carbon market, and it covers various sectors, such as power generation,
manufacturing, and aviation. The EU ETS was Established in 2005 and it operates on the
principle of cap-and-trade, whereby a cap is set on the total amount of carbon emissions
allowed within the EU, and emission allowances are allocated or auctioned to companies
(Ellerman et al. (2010). Those companies that reduce their emissions below their allocated
allowances can sell the surplus to companies exceeding their limits and thereby creating a
market for carbon credits.

The EU ETS carbon market aim to create economic incentives for companies to reduce
emissions by rewarding those that adopt cleaner technologies and practice and by putting a
price on carbon, the carbon markets encourage the adoption of low-carbon alternatives and
it provide a flexible and market-driven approach to emission reductions.

Several academic studies have explored the effectiveness of these carbon markets and a
study by Aldy and Stavins (2011) examined the EU ETS and found that it led to a reduction in
emissions in the electricity sector across the European Union.

The effectiveness of the European Union Emissions Trading System (EU ETS) in achieving
emission reduction goals has been subject to debate. While the EU ETS has contributed to
emissions reductions in some sectors, its overall effectiveness has been criticized for various
reasons. These include the initial oversupply of allowances, resulting in a low carbon price,
and concerns about the effectiveness of the cap in driving deeper emission cuts and there
have also been concerns about market manipulation and the need for stronger governance.

It is my believe that the incentives given by the governments across the EU towards
renewable energy and reduction in carbon emissions encouraged businesses to be more
responsible and proactive on reducing environmental emissions because of the overall
financial benefits the businesses derive from those incentives.

Examples 2 of Market-Based Solutions to Climate Crisis

Another very good example of a market-based solution is the Regional Greenhouse Gas
Initiative (RGGI) in the United States of America. The RGGI is a cooperative effort
implemented by the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New
Hampshire, New York, Rhode Island, and Vermont, which are all located in the North-Eastern
and Mid-Atlantic part of the United States to reduce greenhouse gas emissions from the
power sector. RGGI was established in 2009, and it operates as a cap-and-trade system
which specifically target carbon dioxide emissions from power plants and under the RGGI
framework, participating states set a regional cap on CO2 emissions from covered power
plants and each state allocates or auctions emission allowances to power plants, which
represents the right to emit a specified amount of CO2. The power plants must hold enough
allowances to cover their emissions and they can also buy additional allowances in auctions
or from other participants, or they can reduce emissions and sell their surplus allowances.

The RGGI program has been successful in achieving emissions reductions and according to a
study by Burtraw et al. (2019), it shows that the RGGI program led to a 45% reduction in CO2
emissions from participating power plants between 2005 and 2017 and the study also found
that the program had positive impacts on public health, reducing air pollutant emissions and
associated health costs across the participating states.

Several studies have assessed the effectiveness of RGGI in achieving its environmental and
economic goals and one notable research analysis by the Analysis Group in 2018 found that
RGGI resulted in a 45% reduction in CO2 emissions from the participating states' power
sector between 2008 and 2016 and additionally, the RGGI program also contributed to a 4%
reduction in electricity prices and the scheme also contributed positively to the economy of
the region by creating thousands of jobs in the region.

Examples 3 of Market-Based Solutions to Climate Crisis

The last of the three examples which I am giving in this essay is the Korean Emissions Trading
Scheme (KETS). The KETS is South Korea's national cap-and-trade system which was
implemented in 2015 by the South Korean government towards targeting greenhouse gas
emissions from around 600 of the country's largest emitters, in South Korea’s biggest
industries such as the power generation, manufacturing, and transportation industries. The
KETS operates by setting a cap on emissions and allocating or auctioning allowances to
covered entities.

Unlike the EU ETS or the RGGI which I outlined earlier in this essay, the effectiveness of the
KETS in achieving emission reductions is still being evaluated and a study by Oh et al. (2021)
assessed the impact of the KETS on CO2 emissions in the power sector and found that it
contributed to significant emissions reductions, however, the challenges related to permit
allocation and market stability have been identified and this indicates the need for ongoing
improvements in the KETS initiative

The three examples which I described above demonstrate how market-based solutions like
carbon markets, such as the European Union Emissions Trading Systems (EU ETS ), the
Regional Greenhouse Gas Initiative (RGGI) and the Korean Emissions Trading Scheme (KETS),
provide economic incentives for emission reductions and these schemes have the potential
to achieve environmental goals while promoting cost-effective approaches to
decarbonization and mitigating damages caused climate change.

Conclusion:

In conclusion, the notion that "market-based solutions such as carbon markets represent the
best policy strategy for tackling the climate crisis" is subject to debate and should be
approached with critical analysis. While I acknowledge the fact that carbon markets have
been implemented as a policy instrument to address climate change, it is also essential to
consider the advantages, limitations, and potential implications within the broader context
of the climate crisis.

While proponents of market-based solutions to climate crisis such as the market liberals
argue that carbon markets provide economic incentives for emission reductions, promote
cost-effectiveness, and encourage technological innovation and they (market liberals)
believe that by putting a price on carbon, market mechanisms can mobilize market forces
and drive a transition to a low-carbon economy, however the critics raise several concerns
with the argument that carbon markets may not guarantee sufficient emission reductions to
meet the ambitious targets required to mitigate climate change. Additionally, the critics are
also concerned about the potential for market manipulation, lack of transparency, and the
ability of carbon markets to address broader environmental and social issues with the
potential risk of market failures, inequitable distribution of costs and benefits, and the
potential for carbon offsets to enable business-as-usual practices.

It is important to recognize that addressing the climate crisis requires a multifaceted

approach by integrating various policy strategies and instruments with market-based
solutions, such as carbon markets, that can play a significant role in reducing emission, but
should be accompanied by complementary policies such as regulations, subsidies, and
research and development support for clean technologies, while appropriate policy
strategies must also consider social equity, environmental justice, and the involvement of
marginalized communities.

Finally, I am of the opinion that the effectiveness of market-based solutions like carbon
markets depends on their design, governance structures, and complementary policies and a
comprehensive approach should also consider the unique circumstances and context of each
region, recognizing that no single solution will fit all contexts. The continued research,
evaluation, and learning from real-world experiences are essential to inform the
development and improvement of climate policies and to ensure they align with the goal of
achieving a sustainable and resilient future for us all on planet earth.
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Ansari, D. et al. (2020). The effectiveness of eco-labels and sustainability certifications in

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