Global Warming is the increase of Earth's
average surface temperature due to effect of greenhouse gases, such as carbon
dioxide emissions from burning fossil fuels or from deforestation, which trap
heat that would otherwise escape from Earth.
Burning
of fossil fuels leads to an increase in global warming and hence leads to a
negative effect on the environment.
Negative
externalities are the negative effects on a third party by the actions of
another party. In the case of global warming in Switzerland, the negative externality
is on the citizens of Switzerland.
For
example, the increase in use of fossil fuels would increase the amount of
carbon dioxide gas in the air which would be inhaled by the citizens. This is
the marginal social cost whereas the costs paid by the company that burns the
fossil fuels is only paying their production costs that is the marginal private
costs. Hence, the marginal social costs are more than the marginal private
costs since the costs are more than what the company is paying for. In this
case, the demand is constant and hence the marginal social benefit and the
marginal private benefit is the same. From this, we can conclude that global
warming is a negative externality.
What
the government is doing to prevent this?
1. Many governments have
introduced cap and trade schemes
2. In Switzerland, the FOEN
handles the environment maintenance and pollution and hence they are the body
that makes laws for polluting firms to pay carbon tax and to make them buy cap
and trade schemes.
3. The FOEN (Federal office for
the Environment) which is the body related to the environment and maintaining
it in Switzerland. In Switzerland, the FOEN has decided set laws that companies
would have to buy cap and trade schemes. The principal of cap and trade schemes
is to maintain the amount of carbon emissions in the atmosphere and to control
the pollution by selling a limited amount of cap and trade schemes that allow a
company to emit a certain amount of carbon dioxide into the air and this would
help the government know how much carbon dioxide is being emitted and helps
them to control it the FOEN has undertaken ETS in Switzerland. ETS (emission
trading schemes)
4. Companies that are large and
intensive need to buy cap and trade schemes compulsorily whereas smaller companies
may participate in this emission trading scheme voluntarily. The companies that
have an installed capacity of 20MW are needed to participate in these schemes
while companied that have an installed capacity of 10MW may participate
voluntarily.
5.
The FEON
predetermines the amount of emissions allowed per cap and they lower it every
year. Emission allowance- emission allowances that are not emissioned for free
are auctioned off for companies to buy and they are held several times a year.
6. Monitoring by companies in
the ETS- companies in the ETS must report their annual emissions. These
emissions are recorded in a monitoring system. These reports may be verified by
an independent third party by the FOEN.
7.
Emissions allowed
for free(benchmark approach)(Only the quantity of emission allowances
required for CO2-efficient operations are issued for free to companies
participating in the emissions trading scheme (ETS). This quantity is
calculated on the basis of benchmarks.
8.
In principle, the quantity of emission allowances issued for free
is calculated based on product
benchmarks. These benchmarks determine the maximum quantity of
emission allowances that are issued per unit produced (e.g. 1,514 emission
allowances per tonne of aluminium). Each benchmark corresponds to the average
emissions of 10 per cent of the most efficient installations. In order to
ensure the same competitive conditions [1]that exist in the EU, the
Swiss ETS applies the same benchmarks as those used in the EU ETS.)
These
are the steps undertaken by the Swizz government to prevent global warming from
being a negative externality since they have tried to bring the marginal
private costs and marginal social costs close since they increased the marginal
private costs by making firms pay for the carbon emissions and this also lead
to a decrease in the marginal social costs since this scheme reduces the carbon
emissions since companies would not want to spend excess amounts on carbon
taxes and would hence cut down on their carbon emissions.
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