Can Global Capitalism Solve Climate Change?

In 2021, the Dixie Fire, the largest single wildfire in Nevada state history, burned nearly 1 million acres. Glaciers melted and polar bear populations lost 10% in genetic diversity over the last 20 years. Extreme and unusually cold weather at Jharkhand, India killed the crops and vegetables in the harvest season. Our Earth is dying, because of climate changes, and we humans are primarily responsible for it. We need changes. But, living under the current trend of globalization and within capitalist markets, how are we able to change? Some argue that the nature of global capitalism with a desire to accumulate wealth makes it impossible to solve climate change. However, I believe in its possibility through implementing carbon tax policies, because it takes advantage of that profit-maximizing nature and uses monetary incentives to urge society to start a greener business cycle.

Thinking about how much more money and time innovating for green production or living with only environmentally friendly products take, people with capitalist ideology are reluctant to change the current polluting lifestyle. The firms, representing the market’s supply side, are profit-oriented. It is the nature of capitalism, that private owners control resources and act for their own good. In most cases, why would one work hard to manufacture inventories, deliver products, maintain customer relationships, battle with competitors, etc.? Money. Finding eco-friendly manufacturing means changing the current production model, and this process costs. From a profit-maximizing perspective, no firms want to change. Similarly, on the demand side, given limited budgets, most people want cheaper goods. If firms spend more to innovate, they often price higher — and customers don’t want that. As suppliers and consumers are closely related and both are money-oriented, they are reluctant to pay for innovation to protect our Earth. Therefore, it seems impossible for globalized capitalism to solve climate change.

Before going into why carbon tax policies are effective, it is important to define this policy first. There are multiple approaches, but what I focus on is a reward-and-fine method on both supply and demand sides. On the supply side, if one entity pollutes, it is fined by higher taxes. Governments highly encourage firms to explore green production, so they provide tax exemption for innovation. On the demand side, governments use the tax money collected from firms and give discounts or cashback if one purchases eco-friendly products. Realistically it is hard to evaluate every product and set corresponding discount rates, so it is better to set unified rates for each large category like clothing, grocery, machinery, etc. By rewarding and fining, ultimately the policy is revenue-neutral.

According to this definition, the carbon tax policies utilize firms’ pursuits of profit and push this supply side of the market cycle to innovate for green technology. If firms pollute, they have to pay a large amount of tax, which harms their gains. If they develop environmentally friendly manufacturing processes, they get tax exemption, benefiting profit margin. Therefore, from a profit-maximizing standpoint, under carbon tax policies, stopping pollution and starting innovation are better off. For example, since 2008, the Canadian province of British Columbia started a revenue-neutral carbon tax policy on fossil fuels, which returned all its benefits through “reductions to personal income tax, corporate income tax, and property tax”. B.C. government collected money from those polluted and financially supported those that didn’t. Positive outcomes in both environmental and financial aspects are brought by such policy. Based on the Pembina Institute studies, we see — “per capita fossil fuel use declined by 16.1% from 2008 through 2013 … [while] B.C.’s per capita GDP has slightly outpaced the rest of Canada’s, growing by 1.75% versus 1.28%”. A drop in pollutive fuel use means a higher chance of environmental protection. What capitalistic market worries — the profits and GDP growth — are also not harmed because B.C. grew more than the rest of its country. Thus, the carbon tax policy is a win-win solution. As companies manufacturing goods and selling services make up an important part of our daily life, when they are restricted by this environmentally-friendly policy, we are more likely to solve climate change.

On the other side of the market cycle, customers are also monetarily incentivized by the carbon tax policy to buy eco-friendly products and these demands would eventually impact firms as suppliers. Based on my definition, the policy requires fines collected from polluting firms to be rewarded to customers who buy eco-friendly products, through discounts or cashback. Customers are urged to buy green products because their monetary pursuits can be fulfilled. Considering a T-shirt you want, even though it is not that expensive, would you choose an eco-friendly brand that costs 12 dollars under a discount provided by the government or a polluting brand that costs you 18 dollars? Most people never bother to get further discounts. Beyond pure monetary incentives, people are also likely to feel good about their efforts in protecting the Earth, which further motivates them to pursue green products. With both extrinsic and intrinsic motivations, consumers love eco-friendly products. Afterwards, firms are more likely to switch to producing green products so that they earn customer stickiness and more market shares. This starts a virtuous business circle. With the carbon tax policy proposed, we ultimately change the whole polluting business cycle and protect our Earth.

Sadly, we do have to admit that carbon tax policy is not perfect because it could not change our inherent defects — firms’ technological innovation and exploration for green energy cannot keep pace with our urgent needs to solve climate change. Even if firms immediately react to our policy by stopping pollutive manufacturing and innovating for green technology, they need a significant amount of time to actually achieve results. Research and development are hard. The problem is, under the worsening climate changes, what we are lacking is time. As Larry Elliott discussed in his article, along with Stern’s perspective, “all the major car-makers now accept that the era of the internal combustion engine is coming to an end … but the speed of action is still far too slow”, therefore “fossil fuels will still account for more than 50% of energy consumption by 2050”. How the car-making industry changed represents how people see the urgency to stop burning fossil fuels and begin to try more environmentally friendly energy. This aligns with what we want to be the impact of carbon tax policies — making firms innovate. However, the data followed shows that we still largely depend on polluting inputs in our production in the next 30 years, which reflects that our development for new green energy is far too slow. We have already had a temperature rise per decade in the past 30 years (0.18 degrees C) twice as much as it was since 1880, which already brought severe storms, increased droughts, loss of species, etc. For another 30 years burning fossil fuels as we do now, who knows how detrimental our living conditions will become. Therefore, there is a detrimental problem that carbon tax policy could not solve.

However, does our defect in innovation speed make our carbon tax policy worthless? No. The policy is the first step, initiating the movement for companies and individuals to protect our Earth. Without the policy, people don’t even try to produce or consume green, which is even worse. The problem of exploring new energy too slowly is our realization of our inability during the movement. Knowing that we aren’t capable of dealing with the urgent climate change problem with ease, we are inspired to prioritize it more and put in more effort. For example, we may want to adjust our needs so that we can stop the most pollutive sections immediately.

While some believe that the desire for profit makes people under global capitalism unable to solve climate change, carbon tax policies utilize such desire and use monetary rewards and fines to urge the society — both consumers and suppliers — to start a more environmentally friendly business cycle. Once firms are pushed to innovate production and people are into buying green products, even if we are not able to achieve cheerful results immediately, at least we start. Step by step, we will solve climate change and make our Earth a better place, as it used to be.