1. Externality is the consequence of different economic activities that affects third parties in the surrounding environment in negative and positive way. Pollution emitted by factories, affects health of individuals is negative externalities and laborers who provide productivity to the company is positive externalities (De Gouw et al. 2014). Proper pricing done by government on pollution helps in reducing externalities by implementing tax on individuals or factories that create pollution. Proper introduction of tax helps in increasing cost of production or consumption which helps in reducing demand and output of good that creates negative externalities (Ripple et al. 2014).
2. Mitigation of GHG is a public good as other public goods and is vulnerable in nature for free rider issues. Therefore, economics related to change in climate helps in identification of Greenhouse gas mitigation as public good. However, adoption of change in climate is known as private consumption (Elliott and Fullerton 2014). Implications of mitigation of these are problem related to free rider game is limited in case of the adoption; however, it changes in case of individual country. In individual countries, green house gases mitigation is considered as the dilemma game of the prisoner (Ranson and Stavins 2016).
3. Reasons for government to implement policy to reduce emissions
- Proper expansion of usage of renewable energy to be less dependent on the fossil fuels and coal (Elliott and Fullerton 2014).
- Proper reduction in tropical deforestation to reduce emissions related to global warming with proper investment of energy related technologies.
- Proper implementation of tax done by governmentwill act as policy instrument to achieve reduction in Greenhouse gases (Ripple et al. 2014).
- Proper information has to be provided by government for conserving energy and establish programswill help in reducing greenhouse gases and will be sustainable for environment and cap trade tax.
De Gouw, J.A., Parrish, D.D., Frost, G.J. and Trainer, M., 2014. Reduced emissions of CO2, NOx, and SO2 from US power plants owing to switch from coal to natural gas with combined cycle technology. Earth's Future, 2(2), pp.75-82.
Elliott, J. and Fullerton, D., 2014. Can a unilateral carbon tax reduce emissions elsewhere?. Resource and Energy Economics, 36(1), pp.6-21.
Ranson, M. and Stavins, R.N., 2016. Linkage of greenhouse gas emissions trading systems: Learning from experience. Climate Policy, 16(3), pp.284-300.
Ripple, W.J., Smith, P., Haberl, H., Montzka, S.A., McAlpine, C. and Boucher, D.H., 2014. Ruminants, climate change and climate policy. Nature Climate Change, 4(1), pp.2-5.