Greenhouse Gases

When an individual drives a car, heats a house, or uses an aerosol hair spray, greenhouse gases are produced. In economic terms, this creates a classic negative externality. Most of the costs (in this case, those arising from global warming) are borne by individuals other than the one making the decision about how many miles to drive or how much hairspray to use. Because the driver (or sprayer) enjoys all the benefits of the activities but suffers only part of the cost, that individual engages in more than the economically efficient amount of the activity. In this sense, the problem of greenhouse gases parallels the problem that occurs when someone smokes a cigarette in an enclosed space or litters the countryside with fast-food wrappers. If we are to get individuals to reduce the production of greenhouse gases to an efficient rate, we must somehow induce them to act as though they bear all the costs of their actions. The two most widely accepted means of doing this are government regulation and taxation, both of which have been proposed to deal with greenhouse gases. Many human activities are responsible for the production of greenhouse gases. Generating electricity is the single largest source of CO2 emissions in the United States, followed by transportation. Negative externalities are created by individuals who engage in more than the economically efficient amount of an activity, such as driving. Because the driver enjoys all the benefits that come along with driving and only suffers part of the cost, they do not put a limit on how far or how often they should drive. The only way to get individuals to participate in reducing greenhouse gases is by having them bear all the costs of their actions.