Climate change and the visible hand

The key to success in mitigating climate change is the emergence of new technology. But technology needs to be commercially viable, or it will fail.

- DHIRAJ NAYYAR

The one thing that is apparent after the latest global climate summit, COP26 at Glasgow, is that business as usual is not going to contain global temperature rise to either 1.5 or 2 degrees Celsius, above which potentially catastrophic outcomes for the planet become greatly magnified. Nor will announced pledges help meet the target. Disruption is required. But who will bring about the disruption, government or market forces? For emerging economies like India, that choice could determine not just outcomes on climate but also the speed of their economic rise.

Economics 101 would tell you that climate change is a classic example of negative externality, public "bad" and market failure because no individual (person or firm) bears the full cost of their carbon-emitting actions; society does. It is an apt case for government intervention. If any further evidence is required that a solution to climate change cannot be left to individual economic actors, or even individual nations, the apparent failure of governments to agree on ambitious enough plan at COP26 is a textbook example of collective action problems, where cooperation could lead to a superior outcome, but individual interests do not allow it. In theory then, climate change could open the door for a much large role for the State in economic activity, either nationally or supranationally.