The Market Is Mispricing The Atmosphere

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Sorry market lovers, but it looks like the market may be getting something wrong. Nobel prize winning economist Joseph Stiglitz and economist Nicholas Stern write in an op-ed in the Financial Times today that the markets are failing on climate policy. Simply put, the market takes clean air for granted. However, a clear policy on carbon would help to alleviate that and set us on a better economic trajectory.

FT: Private investments are driven by market signals. These signals are distorted because we have been pricing one of the world’s scarcest resources – a “good” atmosphere; or the societal costs of emissions, which lead to a “bad” atmosphere – at zero. Not surprisingly, this has led to inefficient outcomes, with emissions levels too high and too little effort devoted to energy conservation and research.

Providing a strong, stable carbon price is the single policy action that is likely to have the biggest effect in improving economic efficiency and tackling the climate crisis. Clarity on policy and prices is all the more important now, with companies facing such uncertainty because of the financial crisis: the two risks compound each other, damping investment. We may not be able fully to resolve the risks of the financial crisis quickly; but we can take actions now that will markedly reduce uncertainties about future carbon policies and prices.

 

 

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