Introduction

The above quotation offers a broad comment on the merits of a mixed economy and it effectively sums up the main argument in this chapter – namely that market instruments can and should be used by governments to confront global environmental challenges, and more specifically climate change, but that the market needs to be guided, rather than given free rein. Economic instruments that depend on market forces, including taxes and subsidies, are indeed very powerful; and, in the right hands, they have the potential to achieve the massive behavioural changes that are required to meet the challenges of climate change. However, to allow the market alone to determine how resources are to be allocated is not simply to risk inequitable and inefficient outcomes; it is to abrogate moral responsibility. Faced with a challenge as enormous as climate change, it can be considered reprehensible for a government (or numerous governments acting in concert) simply to say ‘let the market decide’. At risk is not only the human security of the populations of the countries concerned, but people of all nations, in the present and, to a far greater extent, in the future.

The challenge of climate change can be summarised as follows. Global warming imposes high costs on present generations, especially the poor, and will impose even higher costs on future generations.