Should The Australian Government Prevent Climate Change?

The climate is changing dramatically nowadays to a point that it has affected the world economy. This is due to the significant increase in human activities such as the burning of fossil fuels which are coal, oil and natural gases, agriculture activities, and deforestation (Australian Government n.d.). Therefore solutions to the climate change are needed in order to bring economic benefits.

Government will intervene the competitive markets when there are market failures. Market failure refers to a situation in which the market fails to allocate resources efficiently on its own (Gans et al. 2015). Some examples of market failures are bounded rationality, asymmetric information, transactions cost, externalities, public goods, imperfect competition and inequality. Government will intervene through public policy solutions to correct these market failures.

The market equilibrium is not efficient because there is externality (Gans et al. 2015). This is because people ignore the external effects of their actions when deciding how much to demand or supply.

Climate change is the negative externality as the emission of greenhouse gases has adverse effect to the bystander. Most of the firms do not care about the carbon pollution created in their production process and the consumers, too do not concern about the pollution that causes by their consumption (Gans et al. 2015). They tend to ignore the consequences of climate change as they do not own the global atmosphere (Freebairn 2007). Hence the government will have to intervene to limit the emission of greenhouse