Economics and Policy of Climate Change - Essay Example

ECONOMICS AND POLICY OF CLIMATE CHANGE Student’s name Code & Course Professor’s name University City Date Introduction The change in the global climate, primarily caused by global warming has been on a steep rise with a scientific consensus basing its cause on human activities (Coumou et al , 2013). The burning of fossil fuels is the primary cause among other activities such as agricultural practices and deforestation (Shakun et al, 2012). The situation of the climate in Australia is characterized by an increase in the fire climate, reduction in rainfall and reduction in the rainfall season. The Australian Bureau of Meteorology is tasked with monitoring and observing the climate (Pozzi et al, 2013) and its recent report indicate that the intensity of carbon dioxide (CO2 ) in the environment are at their highest. Among the sectors most affected by climate change in Australia is the transportation sector whose facilities come into frequent contact with climatic elements. Policies have been put in place by the Australian government to address climate change and among them are the carbon tax policy and the direct action plan. These policies address the emission of CO2 through purposing for the reduction in its levels. This retro respect paper thus seeks to discuss the climate change impacts on transportation, compare the two climate change policies in Australia and the risks, opportunities and strategies that can be adopted by the sector to contain the climate change dilemma. Climate Change Impacts anticipated in the Transport Sector The transport industry is among the key profitable sectors in Australia that directly affects the government down to individual lives (Butlin, 2013). There are several effects of climate change that are influential on the climate sector. Global warming affects snow on mountains which in turn melts and runs down into water bodies at an accelerated pace. This causes an increase in the levels of water. As a result, there are potential storm threats which could affect transportation. Among the effects are delays in shipping schedules, sea accidents and disruption of communication over the water bodies. The key foreseeable elements such as the precipitation rates, waves, winds and currents are influenced thus affecting the location of the intended journeys (Coumou et al, 2013). In the aviation industry for instance, flights are unable to take off due to extreme windy conditions. Studies on precipitation have shown that it clears the accumulated oil on the roads that occurs over a dry period hence resulting to the slipperiness of roads. Climate change additionally leads to erosion and sedimentation. Sedimentation could affect the currents and waves and also changes in the hydrology of rivers. The meltdown of ice from global warming affects sea ice in regions such as the arctic and is likely to change the usual shipping route in the event of a massive meltdown (Shakun et al, 2012). As a result of climate variability, aspects such as hot weather, storms and other extreme weather lead to disruptions in the transport sector in terms of commuting and use of supplies that assist in the building of transportation infrastructure. Flooding causes delays and cancellation in transport schedules. It also leads to accidents from unprecedented obstacles and conditions on the roads. On the whole, transport systems generally perform worse in adverse and extreme weather conditions. Furthermore, an increase in the atmospheric pressure results to a reduction in the density of air. Following this, studies show that it may lead to cargo loss, an increased length of the runway and ultimately more fuel needed to service the aircraft (Nemri and Demirel, 2012). It is thus clearly projected that the changes in the weather conditions and the usual landscapes are bound to affect the transportation sector through influencing its competitive nature by causing disruptions, injury and spoiling infrastructure. Most of the impacts are short term as observed from major studies on the effects of the change in climate on transportation. In the long term conversely, there is the possibility of massive deterioration of transport infrastructure due to continuous assault from weather elements that result from variability in the climate (Nemri and Demirel, 2012). Policies on Mitigation of Greenhouse Emissions: Carbon Tax and Direct Action Plan The approach to price carbon is a strategy that has been adopted by various international communities in a bid to cater for variability in the climate caused by production of greenhouse gases (Gollier and Tirole, 2015). Although controversial, carbon pricing has been used through the implementation of policies based on the same to effect the diminution of the emission of CO2. The policy can either be a tax or a cap and trade. Before adopting the Direct Action Plan, Australia implemented the carbon tax to help deal with climate change. The Australian government has come up with policies targeted towards climate change to aid the country reduce the adverse effects of climate change (Burke, 2016). The policies are meant to reduce the amount of emissions released by activities in Australia, support the use of energy that is both clean and efficient, culture flexibility towards the unavoidable effects of climate change and ultimately support an effectual comeback to the global climate change. The government has intervened through the introduction of the Emissions Reduction Fund that supports the Australian community to engage in activities that reduce the emission of greenhouse gases. Implemented on the first of July 2012, the Australian Carbon Tax oversaw a wide range of Australian sectors and businesses that emitted gases to an equivalent of CO2. The main idea behind the tax was thus to lessen CO2 production below the projected intensity. The history of the carbon tax in Australia goes back to the task group that was assigned with designing a global emission trade system that was workable and one in which Australia would be able to participate (Clark et al , 2014). The initiative of the Direct Action plan is to approach climate change through an Emissions Reduction Fund that supports businesses directly in reducing the emissions from green house gases. The plan additionally boosts renewable energy sources and supports innovative technologies that are targeted towards the renewal of energy. A comparison between the Carbon Tax and Direct Action Plan reveals that in the carbon tax the government decides on the price of carbon while in the Direct Action Plan the government mediates directly to businesses and households to reduce emissions (Burke, 2016). Market forces in the carbon tax are the ones that influence the level to which the quantity of the emissions will be decreased while in the Direct Action Plan there is the closing of establishments that emit highly, provision of subsidies for products that have minimum emission and limiting of new business ventures that have high emissions. The Carbon Tax policy has varying levels of resultant emissions, certainty by businesses on the price of carbon emissions and a resultant increase in government revenue. It however affects growth, productivity and income in a negative way. On the other hand, the Direct Action Plan has no increase on government revenue and also has a negative influence on the growth of productivity and incomes. The Carbon Tax policy has a positive effect on the transportation sector as the revenue that the government collects can be used to compensate for transport infrastructure damage that is a result of climate change or provide for innovative technologies that will curb the effects caused by climate change on the transportation sector. On the other hand, the Direct Action Plan would move towards reducing transportation activities as it is among the sectors that emits relative green house gases. Risks and Opportunities of the Transportation Sector in a Carbon Constrained World Most industries and companies have had to adapt to the current carbon constrained world in order to assist in the management of climate change. Climate change exposes industries to various risks, most of which are not anticipated for (Zivin and Neidell, 2014). In the transportation sector, reputational risk is among the first risks as most individuals will avoid the use of carbon emitting transport means thus reducing the sector value and market share. The transportation sector will additionally lose its competence due to reduced performance. The application of the Carbon Tax policy for instance calls for companies to remit a certain amount of money to the government. This fund has to be deducted from the company’s assets and it could lead to loss of employment for the organization to effectively manage its funds. The Direct Action Plan on the other hand limits or completely cuts out ventures that emit into the atmosphere. This action is worse off for the transportation sector as it will reduce income, performance and consequently the growth of the sector. In as much as the existence in a carbon constrained world is daunting for the transportation sector, the stakeholders may still find an opportunity for new business avenues through the implemented policy. One instance is the sale of environmentally friendly fuel products and the innovation of transportation vehicles that use renewable energy. The Toyota Company for instance is among the vehicle and transportation industry firms that have adopted the use of innovative technology to create new generation vehicles that have a reduced CO2 emission percentage of up to 90%. It is additionally altering its production processes to limit the production of greenhouse gases and also gearing towards the use of hydrogen in its activities. Adaptation Strategies Based on Kolk and Pinse’s (2005), there are two strategic responses to climate change and they include innovation and compensation. The approach to innovate encompasses the adoption of environment related technologies which reduces emissions while the strategy to compensate lets a company or sector go on with its activities while using emission reduction technologies. The sectors that choose to innovate based on the mitigation of climate change purpose to come up with core competencies that generate systems which are integrated to reinforce diverse production of the firm. In compensation, the main aim of the respective firms is to transfer the emission processes to other entities through buying of credits for carbon or engaging in projects that counterbalance the effect of greenhouse gas emission from their companies. Innovation has been characterized as a more lucrative idea where the businesses view it as an opportunity to get into a new market. Compensation has been related more to sectors that view climate change as a risk to their activities (Kolk and Pinse, 2005). Furthermore, innovation is part of a strategic approach that uses available resources and capabilities to increase the market power of the business. Nonetheless due to the difficulty of the determination of adaptation strategies, most organizations choose to strongly center their attention on mitigation. This is due to the potential risks that come with abrupt changes thus their choice to maintain their internal capabilities. Companies that possess a strong internal focus would choose to improve processes, develop products and introduce new products that are aligned with the expectations of a carbon constrained world. The transportation sector can adapt to climate change through improving its infrastructure such as building roads that can withstand massive effects of the weather as this would ultimately save on repair costs. The sector can also invest on new innovative vehicles that are climate friendly and also climate adaptive to tackle unforeseen incidents such as stronger vehicles to minimize the impact of injury on the users. For these adaptations, the company needs to have an organizational committee that reviews the implementation and the progress of these developments. Furthermore, the committee should monitor the processes and products to determine whether they should be used further or stopped. Additionally, a creative team is needed to come up with innovative products frequently to deal with the dynamics of climate change. To further adapt, the transport sector could align itself with other sectors and companies that have adopted the innovative strategy into taking climate change as an opportunity and expand their market power. This move also helps to influence growth. The policies of the sector need to be focused towards sustainability and reduction of greenhouse gas emissions. These policies allied with the sector’s objective will help show the perspectives of the transportation sector in a positive light. Reference List Burke, P.J., 2016. Undermined by Adverse Selection: Australia's Direct Action Abatement Subsidies. Economic Papers: A journal of applied economics and policy. Butlin, N.G., 2013. Investment in Australian economic development, 1861-1900. Cambridge University Press. Clarke, H., Fraser, I. and Waschik, R.G., 2014. How Much Abatement Will Australia's Emissions Reduction Fund Buy?. Economic Papers: A journal of applied economics and policy, 33(4), pp.315-326. Coumou, D., Robinson, A. and Rahmstorf, S., 2013. Global increase in record-breaking monthly-mean temperatures. Climatic Change, 118(3-4), pp.771-782. Gollier, C. and Tirole, J., 2015. Negotiating effective institutions against climate change. Economics of Energy & Environmental Policy, 4(2), pp.5-28. Kolk, A. and Pinkse, J., 2005. Business responses to climate change: identifying emergent strategies. California Management Review, 47(3), pp.6-20. Nemry, F. and Demirel, H., 2012. Impacts of Climate Change on Transport: A focus on road and rail transport infrastructures. European Commission, Joint Research Centre (JRC), Institute for Prospective Technological Studies (IPTS). Pozzi, W., Sheffield, J., Stefanski, R., Cripe, D., Pulwarty, R., Vogt, J.V., Heim Jr, R.R., Brewer, M.J., Svoboda, M., Westerhoff, R. and Van Dijk, A.I., 2013. Toward global drought early warning capability: Expanding international cooperation for the development of a framework for monitoring and forecasting. Bulletin of the American Meteorological Society, 94(6), pp.776-785. Robson, A., 2014. Australia's carbon tax: An economic evaluation. Economic Affairs, 34(1), pp.35-45. 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