Construct an argument for or against a particular policy for dealing with global warming as an environmental problem relevant to your country. For an example you could argue for or against a particular response to global warming, and the role your country should play in this solution.
The learning outcomes of this assignment are that at the end of this assignment you will be able to:

Give background information to an economics problem which will enable your reader to understand the nature of the problem/issue that you are analysing.

1. Introduction and Background

Global warming is an issue that has led to a whole lot of concern by the international community. Bast (2007) states that “global warming is the biggest environmental issue of our time.” The effects of this environmental issue are so imminent to the extent that even African countries, South Africa for instance, are taking part in international gatherings concerning climatic change.

South Africa is one of the many nations, namely France, Sweden, China and Germany, that participated in the Kyoto Protocol in 2005, to which calls upon the top 35 industrialised nations to cut carbon dioxide and other gas emissions by 5.2 percent below their 1990 levels by 2012 (Yeld, 2004).

Global warming is defined as the observed and projected increases in the average temperature of the earth’s atmosphere and oceans (http://timeforchange.org). According to Wikipedia, the global surface temperature has increased by 0.74±0.18 during the past century. The direct effects of global warming are known to be an increase in temperature on the earth by about 3% to 5% by 2100. The high global temperatures are expected to increase the sea levels by at least 25 meters by 2100 (Ferguson, 2006).

2. The effects of Global Warming

The reason why global warming is taken so seriously is because it has very large social, environmental and economic costs. Global warming effects are massive and affect the world as a whole, not only one particular area. Because of global warming, sea levels are rising due to thermal expansion, and also due to melting land ice. The secondary effects include precipitation amounts and patterns changing. Because of changes in global temperatures, the frequency intensity and duration of floods, droughts and heat waves and tornadoes have increased (Bast, Taylor and Lehr, 2003).

Other indirect effects of global warming are lower agricultural yields, further glacial retreat, reduced summer stream flows, species extinctions. In addition, malaria is returning into areas where it had been extinguished earlier. According to Van Schalkwyk (2005), the number of South African at high risk of malaria may quadruple by 2020, due to the higher temperatures associated with global warming. These higher temperatures make the environment more conducive for mosquito breeding. Van Schalkwyk (2005) adds that the provinces of Gauteng, Mpumalanga, North West and Kwazulu Natal could be malaria zones by 2050. In places where floods occur, there is an increase in water-borne diseases such as cholera and bilharzias. The wellbeing of people is destroyed of the account of natural hazards such as floods, cyclones and tornadoes that occur, especially when infrastructure such as clinics are destroyed. According to the Smith’s GNP criterion for measuring social welfare, the welfare of individuals is expected to decline (Kuotsoyiannis, 1998)

The destruction of infrastructure such as roads, bridges, and telecommunication also lead to the disruption of the transportation industry such that the day-to-day operations of firm are hindered. Private investment declines and GDP falls.

The high temperatures proliferate desertification. This affects the poor small scale rural farmers by reducing their output. Global warming also leads to plant species used for medicinal purposes running extinct. Hotter drier weather in the semi-arid west of South Africa may reduce maize production, generate a proliferation of pests. In the, moister areas the east, rainfall is expected to increase resulting in thickets encroaching into the productive grasslands, threatening livestock and wildlife activities. Tourism, the main driver of development in a number of African countries could be destroyed (Bast, Taylor and Lehr, 2003).

The loss of the natural resources such as arable land and wildlife due to heat waves, droughts, floods and desertification will culminate in a fall in Gross Domestic Product, GDP since the environmental temperatures do not sustain the agriculture industry such that and livestock crop production decline. The high malaria costs could lead to at an added cost to the country of between 0.1% and 0.2% of GDP (Van Schalkwyk, 2005). It is clear that there will be a need for high government expenditure to the extent that there is low GDP increase since high government expenditure for social purposes is associated with crowding out. This is according to the Keynesian transition mechanism (Fourie, 2000). Generally, economic growth is impeded.

It should be acknowledged from the above discussion that global warming causes a wide range of negative socio-economic effects in addition to the environmental effects. The potential consequences of global warming could be devastating for the world's poorest continent, Africa, yet its nations are among the least equipped to cope states that the potential consequences of global warming are devastating for the Africa since Africa is least prepared to cope with these effects (Otter, 2005).

3. Solutions of slowing down globalisation

According the National Geographics, if the emission of greenhouse gasses is stopped today, the earth’s temperature is still expected to rise. However, the measures taken to reduce emissions today still make a big difference in the future (http://environment.nationalgeographic.com). The reduction of emission of greenhouse gases is achieved by resorting to other sources of energy other than fossil fuels(coal, petrol, diesel) such as harnessing wind energy, solar energy, natural gas, bio-fuels (from crops) and nuclear power. The solutions to global warming are not only reducing pollution but also include forestation and re-afforestation because plants absorb carbon dioxide, one of the greenhouse gasses. Increasing energy efficiency and vehicle efficiency also assists because it means that less energy is used, thus less pollution is produced.

In South Africa, the Environmental Affairs and Tourism Minister, Van Schalkwyk (2004), put a ban on the use of 4x4 vehicles on the beaches of KwaZulu Natal Province and opened up provisions that catered for some beaches to be opened for recreational use by 4x4s. According to Van Schalkwyk (2004), the ban, unfortunately, led to the destruction of some local economies such as those in the St. Lucia in KwaZulu Natal province. Moreover, tourists simply fled to the beaches of Mozambique where the local economies are blooming though at the expence of the environment. Van Schalkvyk (2004) was at this time motivated to lift the ban on 4x4s. He also stresses the need for the provision of environmental training.
Currently there is a debate concerning the solutions to global warming. Others feel that as individuals, their contributions in targeting global warming are negligible, so they are not inspired to doing anything about this global crisis. However, some feel that each individual’s effort will eventually lead to a global success with regard to eliminating or slowing down global warming (www.saep.org). It is sometimes necessary according to Keynesian economists for government to intervene, in this case due to the presence of market failure and failure of individuals to act rationally and ethically with regard to conservation issues. In line with the resolutions of the Greenland Dialogue to discuss the Kyoto Protocol & climatic change and other international conferences linked with global warming, Van Schalkwyk (2009) states that the South African “…government has also made clear its intent to put an escalating price on carbon, be that through market mechanisms, a carbon tax, or a combination of these instruments."

4. Assessment of South Africa’s step against global warming

The purpose of this article is to analyse the effectiveness of one policy that has been implemented in South Africa to fight globalisation. This is necessary to determine if the policy is successfully or it is in need for restructuring to increase its effectiveness.

Focus is on the effects of a carbon tax on producers. This means that a tax, Pigouvian tax, is charged on the firms which pollute the atmosphere. The higher level of emissions, the more tax the producer pays. The tax creates incentives for the producers to reduce both their output and their discharge. This is done because the private costs do not cover the actual social cost of the tax to the public. The tax covers the gap between the private costs incurred by the firm and the actual cost faced by the community. The underlying principle of environmental charges is that the discharger of pollution, if ‘rational’ will reduce their pollution up to the point where the marginal cost of the reduction is equal to the charge on the marginal unit of pollution (www.maf.govt.nz). This tax also becomes a disincentive to pollute to the effect that firms will take the necessary measures to avoid pollution and thus the tax by making their waste less hazardous to the environment (Pigou, 1920; Rosen, 2000).

The Pigouvian tax on pollution, the carbon tax, in this case, has its successes and limitations. It discourages producers from emitting harmful substances into the atmosphere. Moreover, the revenue received by the government can be used to attend to the social needs of the people, whether they arise from the polluted air or they are other needs that may arise such as water provision. The tax system provides polluters with the flexibility and encouragement for further innovations and the development of improved technologies. Taxes attract less opposition because they are less disruptive to the market than regulation (they can keep doing the activity by paying the charge). Taxes are flexible as their levels can be adjusted and they don’t need to change policy as new alternatives arise (unlike regulations) (Pigou, 1920; Black et al, 2001).

However, taxes are characterised by weaknesses. One of its main limitations is that it is levied against output rather than the actual discharge and therefore may have other consequences upon the local economy. Another problem is that the method requires precise estimations of the external costs to calculate the tax. Another flaw is that the method requires precise estimations of the external costs to calculate the tax. Obtaining these means that the process of setting a tax is very open to political interference and so the outcome depends less on what the actual damage is, and more upon the relative bargaining strengths of the affected parties. Moreover, taxes require a lot of information to set them at the right levels and there may be some mis-allocation initially. Taxes are too slow if immediate results are needed and difficult to plan for because the results depend upon the responses of individuals. Less administration is required with taxes for a small number of landowners because the responsibility for managing the activity is left to individuals. But with large numbers of affected people there can be a lot of extra administration costs (Black et al, 2001; Rosen 2000).

The work by Baumol and Oates (1975) has shown that indeed taxes are necessary to overcome public externalities such as pollution. They however have met opposition by, Coase (1960), Buchanan and Stubblebine (1862). Barnet (1980), on the other hand states that the findings by Baumol and Oates (1975) are not correct because they fail to deal adequately with taxation of externalities, especially if those externalities are for firms in imperfect competition. Barnet (1980) concludes from his studies that where polluters are imperfectly competitive, second best optimal tax rates may be less than marginal effluent harm; and the amount by which optimal tax rates fall short of marginal damages may increase as price elasticity of demand for the polluter's produce decreases.

Because of the findings by Buchanan (1969) and Barnet (1980) above, David and Sinclair-Desgagne (2005) state that because firms that pollute the most operate in imperfect markets, optimal emission tax should be higher than the marginal social cost of pollution. Intuitively, imperfect competition between environment firms results in abatement prices higher than the marginal cost of abatement. This means that emission costs should be higher than the marginal damages so that polluters will reduce their pollution.

In the light of the above argument, Nimubona and Sinclair-Desgagné (2005), show that taxes targeting polluting emissions must adjust to the relative market power of environment firms (on the abatement market) and polluters (on both the final good and the abatement markets). All things equal, a relatively more concentrated and powerful eco-industry warrants higher emission taxes. Once this is done, the taxes set are high enough to ensure that firms, whether operating under perfect competition or not, are discouraged from emitting dangerous greenhouse gases which contribute to global warming.

5. Recommendations and Conclusion

This study, thus, recommends that the South African government charges a Pigouvian carbon tax on firms. However, the tax rates should be charged considering that firms are operating in imperfect markets. This is to ensure that the taxes are high enough to act as disincentives, for pollution. By doing this, emission of greenhouse gases is kept at a minimum and thus global warming is delayed.

The public should be taught about the other sources of energy that are more environment-friendly such as bio-gas, solar energy, wind energy that are alternatives to fossil fuels.

These measures reduce pollution and eventually combat global warming in the long run.




Bibliography

Barnett, A. H. 1980. “Pivogioan rule under monopoly,” The American Economic Review, Vol. 70. No.5, p 1037-1041

Bast, J. 2007. “Global Warming Madness and How to Stop It” Available online at http://www.heartland.org/policybot/results/20549/Global_Warming_Madness_and_How_to_Stop_It.html Access on 18 August 2009

Bast, J. L, Taylor, J. M. and Lehr J. 2003. “State Greenhouse Gas Programs: An economic and scientific analysis.” Available on line at http://www.heartland.org/policybot/results/11133/No_101_State_Greenhouse_Gas_Programs_An_Economic_and_Scientific_Analysis.html

Baumol, W. J. and Oates W. E. 1975 “The Theory of Environmental Policy”, Englewood Cliffs
Black et al, 2001. “Public Policy and Finance”, Juta Publishers 4th Edition

Buchanan, J. M. 1969. "External Diseconomies, Corrective Taxes, and Market Structures," Amer. Econ. Rev., Vol. 59, 174-77.

Buchanan, and Stubblebine, W. C, 1962. "Externality," Economica, Vol. 29, 371-84.

Coase, R. 1960. "The Problem of Social Cost," J. Law Econ., Vol. 3, 1-44.

Ferguson, R. 2006. “Issues in the current state of climatic science - A guide for policy makers and opinion leaders” Available online at http://www.heartland.org/custom/semod_policybot/pdf/24312.pdf\ Access on 18 August 2009
Kuotsoyiannis, 1998. “Microeconomics,” MacMillan

Nimubona, A. and Sinclair-Desgagné,B. 2005. “The Pigouvian Tax Rule in the Presence of an Eco-Industry,” Ecole Polytechnique Centre National De La Recherche Scientifique Available online on http://hal.inria.fr/docs/00/24/30/20/PDF/2005-12-12-1274.pdf Acess on 20 August 2009

Pigou, A. C., 1920. The Economics of Welfare (Macmillan, London).

Rosen, H. 2000. “Public Policy and finance,” MacGraw-Hill Publishers 5th Edition.


Schmidt, J. 2009 “Developing Country Action on Global Warming: Speech of South African Minister,” Available online at
http://www.globalwarmingisreal.com/blog/2009/01/14/developing-country-action-on-global-warming-speech-of-south-african-minister/ Assess on 19 August 2009.

Yeld, J. 2004. “SA draws up battle plan on global warming,” Available online at http://www.capeargus.co.za/index.php?fSectionId=49&fArticleId=2251047 Accessed 19 August 2009

“Air pollution, global warming and South African energy Policy,” Available online at http://www.saep.org/media/docs/123444095012.pdf Access on 19 August 2009

“Description of Policy instruments” Available online at http://www.maf.govt.nz/mafnet/rural-nz/sustainable-resource-use/resource-management/policy-strategies-natural-resource-management/policy-strategies-05.htm Access on 20 April 2009

http://timeforchange.org/effects-of-global-warming Access on 18 August 2009

http://www.southafrica.info/ess_info/sa_glance/sustainable/update/climate-190805.htm Access on 18 August 2009

http://en.cop15.dk/news/view+news?newsid=1818 Access on 18 August 2009

http://www.news24.com/News24/Africa/News/0,,2-11-1447_1820748,00.html

http://environment.nationalgeographic.com/environment/global-warming/gw-solutions.html Access on 18 August 2009

http://timeforchange.org/definition-for-global-warming-what-is-global-warming Access on 18 August 2009

http://www.globalwarmingheartland.org/ Access on 18 August 2009

Should education be subsidised or not?

Duhalde (2007) engages in a speech at Bowdoin College about student debt. In the speech entitled, “Education is a Right – Not a Privilege.” He emphasises the reality of student debts and states that education, a right, should be availed to all, despite the debts. Instead education should be subsidesed to assist the worse off students. However, views as to whether education should be subsidised or not vary.

In the American context, it is noted that there has been a rise in subsidies since the 1970s, encouraging people to enter college who otherwise would not have. This is seen as something that is “not necessarily a good thing” by Vedder (as cited in Sullum, 2007. Vedder (as cited in Sullum, 2007) argues that "we probably have over-invested in higher education," attracting marginal students who never graduate. Sullum (2007) agrees that Vedder’s (as cited in Sullum, 2007) comment is logical, since anyone who can finish college and reap the typically large returns from doing so should be able to finance tuition through market-rate loans, private aid, or some combination of the two. Wolfram (as cited in Sullum 2007) highlights that these education subsidies lead to inflation, which is a reason good enough to reduce education subsidies. In addition, Sullum’s (2007) argument is that if education is such a good investment, why should the government subsidise it, given its negative attributes?

Rosen (2001) makes an interesting contribution against subsidisation. According to Rosen (2001), subsidising education however does not guarantee and increase ‘consumption’ of education by individuals. This is also another aspect that can be considered to avoid subsidising education. This however contradicts the work by where he states the willingness of parents to invest in higher education increases when parents get financial aid.

All in all, a number of authours (Bishop, 1976; Schultz, 2002; Lommerud, 1989; Zhang, 1996; Glomm & Ravikumar, 1992; and Eckstein & Zilcha 1994) agree that education should be subsidised. Lommerud (1989) manages to show that indeed education should be subsidised. The reasons Lommerud (1989) cites are that educational decisions are undertaken to maximise lifetime utility. As a result it, is becomes optimal to tax the more wealthy to finance educational subsidies to restore people’s incentives to engage in education.

However, deciding whether or not to subsidise education is an intricate process because there are many facets of education. There is, therefore, a need to clearly distinguish between the different types of education and then decide on which category to subsidise. Education subsidisation can be categorised according to subject, gender, education level or depending on ownership of the educational institution (which are only a few of the categories).

Bishop (1976) argues that education especially in the science field should be subsidised as long as it brings benefits to the greater economy. With regard to education of girls, according to Schultz (2002), advocates that, though the incomes of males and females increase equally as workers advance in their education, the marginal returns of women exceed those of males especially in countries where women are much less educated. Schultz (2002) argues that more educated women work more hours in the market labor force, broadening the tax base and thereby potentially reducing tax distortions. These three conditions, justify the disproportionate allocation of public expenditures toward women's education. Dur and Teuling‘s (2001), debate on education subsidisation is centralised on whether subsidisation of education should be done for education into primary education or high school education or tertiary (higher) education. According to Dur and Teuling (2001), the usual argument against subsidies to education above the primary level is that the rich take up most education, so a subsidy would increase inequality. Zhang (1996), Glomm and Ravikumar (1992) and Eckstein and Zilcha (1994) recognise two categories of education which are private education and public education.

According to the work by (Bishop, 1976; Schultz, 2002; Lommerud, 1989; Zhang, 1996; Glomm & Ravikumar, 1992; and Eckstein & Zilcha 1994) this paper supports the fact that there is really a need to subsidise education. However this paper goes a step further and seeks to determine which education category should be subsidised, between private education and public education.
Zhang (1996), Glomm and Ravikumar (1992) and Eckstein and Zilcha (1994), on the other hand, analyses the impact of subsidies on two categories of education which are private education and public education. From the findings of Glomm and Ravikumar (1992), subsidisation of private education leads to lower per capita income that private education unless initial; income inequality is high. In addition they find that public education not only reduces income inequalities but it also increases the median agents welfare as long as the median agent’s income is below average. Eckstein and Zilcha (1994), in support of the findings by Glomm and Ravikumar (1992), find that compulsory public schooling financed by proportional tax, causes faster growth and also reduces income inequality education.

Zhang (1996) shows that subsidising private education speeds up growth and improves welfare. Because of this, under unanimous voting, societies choose to subsidise private education. Providing public education, on the other hand, may reduce both the growth rate of the average income and the median agent's welfare. Because of this, under majority voting, the median agent also prefers subsidised private education to public education unless initial income inequality is sufficiently high. Thus, the decision to subsidise depends on the nature of the society, whether is characterised by a people who earn high incomes or people who earn less than the average income. Zhang (1996) concludes that the novel implication is that a society may start with public education when initial income inequality is high, and will replace it with subsidised private education in a certain number of periods as income inequality diminishes.

It is therefore, the part of the South African government to determine the income inequality of the country and subsidise in the private and public education depending on the welfare of the people in order to make the subsidies as efficient as possible.



Bibliography

Bishop, J. 1976. “Subsidising Science through Education,” Society Journal, Vol. 13, No. 2, p.34-43.

Duhalde, D., (2007). “Education is a Right – Not a Privilege.” speech at Bowdoin College. Available online at http://theactivist.org/blog/education-is-a-right-not-a-privilege Access 30 August 2009

Dur, R. and Teuling, C. N., 2001. “Education and Efficient Redistribution,” CESifo Working Paper Series No. 592 Available online at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=288946 Access 28 August 2009
Eckstein, Z., and Zilcha, I., 1994., “The effect of compulsory schooling on growth, income distribution and welfare,” Journal of Public Economics, Vol. 54, p.339-59,

Glomm, G., and Ravikumar, B., 1992. ”Public versus private investment in human capital: Endogenous growth and income inequality,” Journal of Political Economy, Vol. 100 No.4, p. 818-34,

Lommerud K. E. (1989), “Educational Subsidies When Relative Income Matters” *Oxford Economic Papers Vol. 41, P.640-652

Schultz, T. P., 2002. “Why Governments Should Invest More to Educate Girls,” World Development Vol. 30, Iss. 2, p.207-225

Sullum, J., 2007. “ Jumping the loan shark: If college is a good investment, why should the government subsidise it?” Availabel online at http://www.reason.com/news/show/117910.html Access 30 August 2009

Zhang, J., 1996. “Optimal Public Investments in Education and Endogenous Growth,” The Scandinavian Journal of Economics, Vol. 98, No. 3 (Sep.,), pp. 387-404

http://www.jstor.org/stable/pdfplus/3440733.pdf

First day at it!

I'm excited, hope to be as productive as I imagine I will be! Thanx Nolwazi for the great idea!! I feel like a star already!!