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Public Goods and the Free Rider Problem: Evaluating Climate Change Mitigation Efforts Across Nations
Many people agree that climate change is occurring and is harmful. Unfortunately, few people agree who should take action, how, and to what extent. The problem may be undeniable, but assigning responsibility is trickier. Diplomats have tried to get nations to agree on cutting pollution emissions to slow down global warming, such as through the Paris Agreement, but reducing pollution costs money…which nobody wants to spend. There are several reasons why it is difficult to reduce pollution emissions globally, which makes it unlikely that the international community will be able to significantly fight global warming without major scientific breakthroughs.
Pollution/Global Warming is a Negative Externality and Polluters Do Not Suffer the Full Cost of Pollution
Many economic harms are self-limited because the cost is borne fully by the producer and consumer in the transaction. Others, however, are less limited because the costs bleed over into society and the producer and consumer do not face their full effects, at least in the short run. Pollution is a common example, because pollutants typically spread far beyond the producer’s property. In fact, thanks to wind and water flow, the producer may experience little or no harm from his own pollution, with almost all the harms settling on people downwind or downstream.
If polluters are making profits from their production and do not face the full costs of their pollution, they have little incentive to voluntarily reduce pollution emissions. Due to the global nature of weather patterns, ocean currents, and even outsourced production, the wealthy corporations that generate pollution are unlikely to see those harms at their company headquarters. Thus, corporate leadership can remain ignorant of the harms of the pollution they cause - it is out-of-sight, out-of-mind. They will not try to fix the problem themselves, which forces the problem of pollution to fall to government regulators.
Private Good: Regulations to Fight Pollution Increase Producer Costs, Which is Unpopular
A common regulatory option to fight pollution is to force polluters to use pollution-abatement technology, either through systems like pollution scrubbers or replacing older, high-polluting equipment with newer, cleaner equipment. Companies that refuse or fail to comply can be hit with fines and other penalties, while those that comply may receive tax breaks or subsidies to assist with incorporating cleaner technology. Many businesses dislike these policies, which they say are too expensive to implement and disadvantage older firms, which have older equipment.
Companies that have to pay for anti-pollution regulations will inevitably try to pass these costs onto the consumer. How much this occurs depends on the elasticity of demand for the company’s products. If demand is relatively inelastic, meaning sales will decrease little even if price increases a substantial amount, companies will pass most or all of the pollution regulation costs onto customers. Only if demand is relatively elastic will firms be forced to pay most of the regulatory costs out of their accumulated financial reserves, lest they raise prices and lose revenue.
Public Good: Governments Use Tax Revenues to Protect the Environment
Harms caused by pollution, especially when it comes to global warming and climate change, may be too great to handle through regulations alone. Some climate-altering pollution comes from individual consumers, not just industrial producers. Polluting firms may also delay implementation of anti-pollution regulations through various means, including lawsuits. Therefore, to get started on cleaning up the environment, governments can use taxation and treat environmental protection and pollution abatement as a public good.
Public goods are things that all people can enjoy and benefit from, regardless of ability to pay. As a result, the free rider problem occurs, with most people choosing not to pay. Examples include services like law enforcement, fire protection, and national security - all people benefit from these services existing, and most assume that they would be protected by them even if they did not pay. Most citizens would consider it heartless and cruel to only provide these services to those who could prove annual payment of fees, and such checking would be time-consuming and burdensome, especially during a crisis.
As a result of it being difficult or cruel to exclude non-payers, most societies have chosen to provide these services to all through taxation, with no payment required at the time of service. Roads, public schools, and first responder protection (police, fire, emergency medical services) are given to all people, regardless of taxpayer status. Environmental protection can be seen as a similar public good when one considers government agencies that conserve natural lands, clean up environmental disasters, and conduct scientific research on potential clean energy or pollution-fighting breakthroughs. These services are paid for by taxes and do not require citizens to voluntarily pay for them each year.
However, similar to companies not wanting to pay to comply with anti-pollution regulations, many taxpayers - including corporations - do not want to pay taxes toward environmental protection. They view such environmental taxes as excessive and harmful to free market principles, including business competition. Some argue that these taxes burden consumers, especially those with lower incomes who struggle with taxes already.
Free-Riding Behavior Among Nations When it Comes to Pollution Abatement
Many governments do put in place environmental taxes and regulations on pollution, but are they each doing their fair share? Again, the free rider problem occurs due to the global nature of environmental harms - and improvements. If several nations clean up their air and water, this benefits neighboring countries that did not spend their own money (and burden their own taxpayers) to do so. Thus, it is tempting for nations to drag their feet when it comes to implementing international agreements on pollution abatement and environmental protection: you can save billions of dollars by delaying implementation for a year while your surrounding neighbors start cleaning your air and water!
In addition to the free rider problem, many years of controversial business practices like outsourcing and even colonialism spark debates over who is responsible for paying what. Some wealthy nations generate lots of pollution in other countries through factories that were built many years ago, sometimes with forced labor during the colonial era. Should paying to clean up the environment in developing countries that were used as colonial bases fall to those countries themselves, or to the wealthy nations that built those factories and razed those forests?
Another wrinkle comes from the fact that global warming and climate change are the result of almost two centuries of industrial output, not just today’s pollutants. Many wealthy nations polluted heavily in previous decades, but have since switched to cleaner energy. These nations now balk at being expected to contribute significantly to climate change agreements, arguing that they are now “green”. Developing nations with higher pollution levels, due to fossil fuels typically being cheaper to use than clean energy sources, argue that they will struggle to develop economically if forced to “go green” quickly. If Western nations got to transition to clean energy gradually, after over a century of heavy coal and oil use, why should developing nations not get the same economic benefit?
Tragedy of the Commons: Climate Change is Unlikely to be Checked With International Agreements
Despite the most noble intentions, it is unlikely that enough nations will collaborate in good faith to stop global warming. The fact that pollution cannot be limited to within the boundaries of its creator, and access to resources like water and air often cannot be limited either, means that polluters will continue to pollute. They do not face the full costs of their environmental harms, and thus will generate too much of those harms. Similarly, they do not bear the full burden of over-using common resources like clean water or fish, and so will continue to over-use these resources.
However, the international community may be able to end global warming by collaborating on scientific innovations to reduce the use of fossil fuels and harmful chemicals. An example would be fusion energy, which could theoretically end any real energy scarcity on earth. Most polluters do not want to pollute, but do so because it is a necessary by-product of energy. Improvements in clean energy technology can reduce pollution more effectively than regulations, and can be generated by government-funded research.
