Commentary turn spends on research towards climate change/global warming.

 

 

 

 

 

 

 

 

 

 

 

 

Commentary on: Clean fuels standard coming soon but
maybe not this fall: McKenna

This article
provides information regarding a proposed solution to high pollution levels in
Canada. High pollution levels are a global issue for many reasons; the
production of greenhouse gases have been connected to climate change, and
consumers often end up paying more in the long run to use disposable products
or semi-permanent products in the absence of an eco-friendly alternative.
Consumers also indirectly pay for the damages that high levels of pollution can
cause through their taxes to the government, which the government in turn
spends on research towards climate change/global warming.  The trends of this article can be illustrated
by a negative externality of production graph. A negative externality of
production will have external costs for consumers- in this case, the pollution
is an external cost as a result of the producer.

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This graph demonstrates
a negative externality of production. Negative externalities of production
occur when a third party suffers from the economic relationship between
producer and consumer. Externalities are a type of market failure. Market
failure refers to the failure of the market to deal with resources efficiently:
the goal of all economic systems. In failing to allocate these resources
efficiently, there are unforeseen consequences on a third party, called
externalities, which in this example include the people forced to consume the
pollution even if they do not consume the product. In the graph, we can see
that the Marginal Social Cost (MPC) is higher than the Marginal Private Cost
(MPC).This is because the cost that the producer incurs is lower than the
social cost that this pollution has generated. This social cost generates
welfare loss, which is the amount of people that decide the social cost is too
high to consume these products. If there were no externality here, MSC and MPC
would hypothetically be equal. In order to eliminate the externality, the firm would
need to pay for the damages of pollution on the environment (social cost).

There are other
factors in this example at play, however. There are inelastic goods that would
not have as much of a welfare loss- this is because inelastic goods are not
responsive to price change. Today, cars are quite necessary/inelastic. Furthermore,
there are other factors at play when deciding what the consumer chooses to
consume, like the amount of substitute goods available, and the period in which
the consumer has to pay for the item. 

There is not just
proposed solution alluded to in the article; the Clean Energy Canada campaign
incorporates all the usual ways to correct market failures like a negative
externality of production, making sure that the goal is to make MSC equal to
the MPC. To do this, the Clean Energy Canada campaign is mandating that
producers integrate more “ethanol, biodiesel and renewable diesel into existing
fuels…” to lessen carbon concentration in the production of their goods. Using
different types of fuels could reduce carbon intensity either at the cost or
benefit to the producer (depending on the individual), so keep in mind that the
MSC and MPC would still have to be equal to eliminate welfare loss. The article
also proposes taxation, which is another way to eliminate a market failure. Once
we focus on the direct raise in price of production because the producers pick
up the cost of pollution and add it to the cost of production, the MSC and MPC
would be equal (ideally). This would eliminate the welfare loss, which includes
the people that deemed the social cost of pollution too high to participate in
these economic transactions.

   Additionally, we can deduce what the higher
price due to the increase in the costs of production of fuel will do to the
market for electric vehicles or other modes of transportation that do not
require fuel. The Law of Demand states that if the price of a good increases
while all other components remain the same, the quantity demanded will
decrease. Since the price of maintaining a vehicle with gasoline has increased
and no other factors have changed, we can infer that the quantity demanded of
electric vehicles will increase to compensate for the decreased amount of
regular cars demanded. 

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