The Economics of Global Warming

By Rocha-Buschel, Maria | The New Presence: The Prague Journal of Central European Affairs, Autumn 2009 | Go to article overview
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The Economics of Global Warming

Rocha-Buschel, Maria, The New Presence: The Prague Journal of Central European Affairs

Prominent scientists around the world have made non-partisan approaches to global warming. The Intergovernmental Panel on Climate Change, which was established by the United Nations Environment Programme and the World Meteorological Organization, describes itself as "policy-relevant and yet policy-neutral." Other organizations such as Greenpeace and the Ecologic Institute are not affiliated with any political party. Yet politics and global warming are very closely related. The uncertain economic climate has adversely affected the fight against global warming by stirring up a debate about the roles of different political systems in solving the problem and threatening the industry of green economy.


The BBC reported on 21 September 2009 that the recession and government policies concerning emissions trading and increased energy efficiency will likely "bring the biggest annual fall in the world's carbon dioxide emissions in 40 years." The report came from the International Energy Agency (IEA), which estimated that the recession is responsible for 75 percent of the fall. According to another report from IEA earlier this year, renewable resources are suffering more than other types of generating capacity. Less demand in the industry, due to the poor economy, will mean increased capacity. However, the report states that if lower investments continue, it is possible that prices will spike again "when the economy is on the road to recovery."

Despite unprecedented growth in the US wind market in 2008, the recession prevented the market from expanding; so too, wind power was down nearly 30 percent this year. Wind power still only provides one percent of the country's total power supply and the industry is primarily dependent on the financial support of banks. According to The New York Times, the industry does not have enough investment for wind projects with the weak state of the financial sector. Developers are hopeful that the US stimulus plan, which focused on a number of green issues, will help. However, the frozen financial markets are an obstacle for progress.

Meanwhile, one of the main drawbacks of solar power as a renewable energy source is the expense. It costs four times as much as coal, and twice as much as wind energy to produce. Government subsidies helped fund solar power before the economic collapse, but it will need greater investments before it can compete with more mainstream energy sources like gas or oil.

The industry was initially doing well despite the recession. According to the Utility Solar Assessment Study released in July 2009, solar panels were becoming more cost-effective and able to compete with conventional energy sources. With rising gas and oil prices and dropping solar prices, the study predicted that solar would be less expensive than mainstream energy sources by around 2015. However, the market research firm the Information Network said this September that a solar crisis is imminent for 2010, and 50 percent of solar manufacturers might not survive due to overcapacity. The recession hit just as solar power was becoming more accessible. Demand went down with the recession, and prices decreased dramatically.


The ongoing conflict about global warming is ultimately an economic debate. Free marketers attempt to address climate change through the markets rather than through government and to formulate solutions through the private sector rather than legislation; they believe the private sector deals with environmental demands more effectively. Green socialism is a more proactive approach to solving the problem, which is derived from the idea that global warming is partly the result of market failure. It combines aspects of socialism and environmentalism, and suggests that the capitalist system causes environmental degradation through globalization.

Critics of environmentalism believe that global warming is an alarmist theory not based in scientific fact.

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