By looking into our past, we can clearly see the climate is changing rapidly. Now a question arises that why this severe climate change was caused? Who is responsible for this and who has facing its alarming/severe impact? Environmental economics largely deals with analyzing and finding solutions to externality-related issues such as clean air, clean water etc.
In fact, Sustainable Development Goals (SDGs) are one of the vital example of how crucial this problem is and needs to be addressed. As United Nations’ SDGs has dedicated 4 out of 17 goals to this issue. Such as SDG no 6 has focused on clean water and sanitation, SDGno. 13 on climate actions, and SDG no. 14 and 15 have focused on life below water and life on land.
Externalities affect other people’s opportunities for consumption and production in an indirect way, but the product’s price does not account for them. As a result, governments have to intervene in the economy. When we talk about externalities, they can be positive and negative. Basically positive externalities arise when one party makes another party better off but does not receive any compensation/benefit for doing so. Similarly, negative externalities occur when action of two parties have negative effect on a third party independent of the transaction.
If we talk about our country Pakistan, every year we face severe floods which greatly impact the country, 30 million people affected previous year (2022) because of flood. Similarly, if we look toward the rainfall patterns, they have changed because of this problem.
According to Economic Survey 2022-23 the monsoon season (July-Sept) 2022 witnessed a drastic increase of 175.3% rainfall. During post-monsoon season (Oct-Dec) 2022, rainfall decreases 18.6%. However, winter season (Jan-Mar) 2023 reveal a decrease of 13.9%.
Pakistan is among the nations most impacted by extreme weather events like heatwaves, droughts, river flash floods, landslides, storms & including cyclones. These all are just because of climate change, even though we (Pakistan) contribute less than 1% of the world’s greenhouse gas emissions, but facing its huge impacts.
Developed economies like USA, China, Japan etc. are responsible for this climate change and its impacts are mostly on developing economies like India, Pakistan, Maldives and many other countries. If we see this statement in the context of Kuznets curve, it indicates that the environmental degradation and pollution increase in the early stage of economic development and after reaching a certain level of economic growth, environmental degradation will decrease. So the developed economies are just working like this curve, now they are focusing on climate when as they have passed the stage of development.
If we see today in Pakistan, AQI indicates that Lahore is the top most polluted city of the world. Situation of Karachi is also worst by AQI. Same goes to India’s city Delhi. This smog is a negative externality which is causing eye allergy, skin allergy problems like asthma and lungs infection to citizens. This is basically cause of industrialization. Pigouvian tax theory says that we should impose taxes on those causing externality. Similarly, the Coase Theorem says that, we can overcome the inefficiencies from externalities through bargaining among affected parties when the property rights are well defined.
But in contrast, developing nations such as Pakistan are paying more toward debt servicing than they receive as climate finance. If we take example of flood, Pakistan has received less than $1 billion in charity for the last flood, “cumin in the mouth of camel” when we compare it to the damage the country has suffered. As Pakistan is the victim of this negative externality still it just gets aids after natural disasters. According to an English daily world owes Pakistan $30 billion a year for creating pollution. Now there’s a question on Pigouvian tax and Coase Theorem explained earlier in article that are they exist in real world phenomena or not?
Why developing countries are not getting the amount which is their right, from developed economies?
If we see today US is focusing a lot on climate now a day, as COP28 was happened from 30 Nov. to 12 Dec. in UAE where there was a conflict because of appointing Sultan Ahmed Al Jaber as the president of COP28 as he is CEO of the United Arab Emirates’ state-owned oil company. But UAE shows a good response in COP28. But unfortunately, USA will never come toward paying the due amount to developing economies which is there right.
Now a question came that when there’s a problem of externality we need Govt. to intervene but in the case discussed above who will bound the developed nations? Which Govt. will intervene?
In the case of climate change the countries who are getting its aftershocks need to take steps for themselves with the help of international organisatioins like UNEP, human rights organisations etc. There is a dire need to practically apply the theories of Pigouvian tax and Coase Theorem which we study in microeconomics and we should demand developed economies to fully pay for the damages it has created for developing nations as it’s their right.