Fri, Aug 05, 2011 - Page 9 News List

Climate change represents a market failure

The problems caused by climate change are not going to go away, but steadfast commitment and well thought out policies on the part of governments, coupled with a commitment and investment by businesses, can help achieve carbon reduction goals and promote greater energy efficiency

By G. Truett Tate

Illustration: Mountain People

Some political problems can be solved overnight; others take years to tackle. However, in the distant future, when the financial crisis and the euro’s troubles are long forgotten, we will still be facing the consequences of climate change.

A challenge of this scale and depth demands an unprecedented level of cooperation — between countries, between political parties and between government, business and citizens. It is for this reason that some of Britain’s biggest businesses, including Lloyds Banking Group, came together in the Prince of Wales’ Corporate Leaders Group on Climate Change (CLG). In other words, we have committed ourselves to working together to confront this challenge and our work so far has been extremely promising: we supported the Climate Change Act; we helped set strong, scientifically robust targets for carbon reduction; and we have supported each successive Carbon Budget up to the latest, fourth installment.

When the UK’s coalition government was formed last year, we were encouraged by British Prime Minister David Cameron’s pledge to make this the “greenest government ever.” Unless we have precisely that, Britain risks not only missing its carbon-reduction targets, but also falling behind in the effort to create a stronger, more stable and sustainable economy. One of the important first steps, which the CLG encouraged, was making the UK the first country to establish legally binding targets for carbon reduction well into the 2020s.

However, making a promise legally binding is only the first step toward fulfilling it, and in this respect there is still much work to be done. In our new report on the UK government’s environmental strategy, Seize The Day: A Call to Action for UK Climate Leadership, the CLG has identified a series of gaps between such pledges and actual policy. We have yet to see the strategy that will turn aspirations into reality and we need a simple and clear policy framework that will turn Britain into a pioneering green economy.


If businesses are to make the necessary investments, they will require a consistent and predictable set of policies. Unfortunately, we have instead seen numerous examples of complexity and inconsistency — for example, the Carbon Reduction Commitment Energy Efficiency Scheme. We recognize that the UK government must use all means at its disposal — including tax levers — to discourage pollution, but we believe that such measures must be linked to a long-term strategy for change.

Nonetheless, there have been many achievements. The government’s “Green Deal” could serve as a flagship example of how to create incentives for homeowners to improve their energy efficiency. And the newly established Green Investment Bank should help encourage investment in the sector. However, both schemes will need adequate resources and firmness of purpose if they are to make a genuine impact.

Climate change is undoubtedly a complex area of scientific study and the associated issues can be equally complex, with major questions yet to be answered. How, for example, does one account for and mitigate the carbon emissions embedded in goods? And, when goods cross borders, does the consumer or the producer pay the mitigation cost?

The problem is one not merely of complexity, but also of ambition. The scale and scope of these challenges necessitate an extraordinary degree of cooperation between government and business. Climate change represents a market failure; in such circumstances, companies must cooperate with their regulators in attempting, for instance, to create mechanisms to generate a representative carbon price.

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