Brief Discussion on Carbon Taxes
The two microeconomic/financial policy tools for climate mitigation of my choice are carbon taxes and green subsidies. Firstly, the discussion will begin with a critical discussion of carbon taxes as a macroeconomic/financial policy that necessarily mitigates the climate. The second discussion policy will be the green subsidies and it will equally discuss how it mitigates the climate. This will not stop at these, but will further give an evaluation of how these tools have evaluated and analyzed the heterodox models of macroeconomy. Significantly, this information will help to eliminate factors that will increase the economic sectors in the community through climate mitigation. The essay will cover these aspects to ensure proper economic scale which is part of the essay structure. The contents will also give the accompanied examples to support the essay structure that would be easily understood by the interested third party. The two selections, that is, carbon taxes and green subsidies are the mainstream and heterodox macroeconomic model policies under analysis and evaluation in the essay.
Carbon taxes is a microeconomic or financial policy that reduces the climate. The policy was recommended by the government to enable the carbon emitters to pay the set prices for the green house emission tones. To discuss further, the consumers and the businesses procedurally adopts the strategies that mitigates the climate changes in the country. This policy has made them to adopt advanced technologies and fuel consumption techniques to reduce gas emission hence helping to avoid paying taxes (Battiston, Dafermos, & Monasterolo, 2021). The reduced emission help in the climate mitigation and this benefits the people in the society. Carbon tax is vital in the provision of the certainty of costs. The green house taxes are conducted in two broad dimensions including; entities quality produced and the goods and services taxes provided. Therefore, people tend to explore on how to set the federal carbon taxation to reduce the accompanied costs.
In the mainstream and heterodox of the macroeconomic models, carbon tax has been analyzed and evaluated in several dimensions. For instance, in the ecological macroeconomic model, carbon taxes help to mitigate the climate in a more standardized approach. The climate catastrophe creates a reconstruction of advanced green houses that emits less gases. If these constructions are omitted, then the involved parties must give the carbon taxes as per the policy requirements. The model also promotes credit provision of the greenhouse investment financing (Drudi, et al., 2021). Later on, the funds are used to support the short comings realized in climate financial instabilities. Again, the model advocates for climate mitigation by avoiding the climate damages that interferes with the demand and supply. As a result, the carbon taxation policy progression is encouraged thereby eliminating the changes. Therefore, the ecological macroeconomic model is important in climate mitigation since it employs the use of carbo taxes to minimize climate damages.
Ecological Macroeconomic Aspects in SFC Model and Its Key Theoretical Underpinnings
In addition, the mainstream and heterodox of the macroeconomic models for carbon taxes analysis and evaluation is Stock- Flow Consistent model. Analytically, this model ignores the consumption and production facts and ideas by ignoring matter and energy applications. They do not consider that economic activities can induce the wastes in the environment to destabilize ecosystem like carbon emissions (Kiarsi, & Masoudi, 2022). Therefore, according to the model carbon taxation can only increase in line with SSP3 because the model neglects the environmental problems most especially carbon. The model allows the recycling of the carbon taxes in forms of the green subsidies and that is the reason these two policies always function together. As a result, the model becomes outstanding or unique and appropriately used for climate eradication (Lutz, Becker, & Kemmler, 2021). The SFC model employs the carbon taxes, green subsidies, and also green public investment in the climate mitigation even though it ignores the loss of biodiversity and deforestation.
Furthermore, the DSGE macroeconomic model extensively analyses and evaluates the carbon tax policy. The model instills environmental aspects and employ the financial fiscals of the monetary approaches. The model analyses the green financial regulations to employ the carbon taxes to help mitigate the climate (Tom, & David, 2018). It also employs two production sectors dealing with the emissions and the green fiscal sectors. This induces the carbon tax policy to start operating in order to mitigate the environmental climate. The carbon taxes are obtained through several approaches mainly through governmental, household, and green and brown bond substitutes involvement. The policy has incurred the needed success since carbon emission is controlled. Also, this happen because carbon concentration in the atmosphere is reduced through appropriate elimination strategies. The climate damages affecting the total productivity factors are minimized to ensure that climate mitigation is attained. The bankers play a crucial role in collecting the monetary fiscals that would promote investment and developments that would mitigate the climate changes.
Green subsidies are other macroeconomic or financial policy that mitigates the climate. It leads to the allocation of resources promoting conducive environment for work. This is because it provides the industries with the clean energy and offering fossil fuels for use (Battiston, Dafermos, & Monasterolo, 2021). It is an important policy factor which promotes the climate mitigation through its ability to arrest the climate changes in the world. Green subsidies approaches promote sustainable consumption and production. The green epistemic communities have been formed as a result of the green subsidies. This helps to mitigate climate changes in the society for living and this makes everyone else to live comfortably. The resultant positive effects are felt in the economy and this is none other than receival of appropriates economic scales that meet the industrial objectives. Therefore, the green subsidies policy for climate mitigation is one of the crucial policies as is to be analyzed and evaluated from the mainstream and heterodox of the macroeconomic models below.
Stock-Flow Consistent (SFC) Model and the Key Theoretical Underpinnings
This model incorporates the green subsidies policies to ensure climate is mitigated. The model agrees that energy and matter enhance production and consumption. They incorporate the green subsidies by clean energy provision to various industries facilitating climate mitigation. Since it takes into account that the economic activities responsibly lead to waste production causing the ecosystem instabilities, it allocates the resources that would help to stabilize it back to normal (Nong, Simshauser, & Nguyen, 2021). The resources that are allocated are used to eliminate the gases emitted to create a new and comfortable industry with clean energy. The model considers the environmental problems like the biodiversity, deforestation, and water scarcity by ensuring the resources for solutions are provided just on time. The installation of the resources that eliminate the poisonous gases, produced wastes and unwanted fossils is done due to green subsidies application in the environment. Hence, it provides the solutions to common problems before they get out of hand.
The key theoretical underpinning includes the green and conventional investments incorporating loans. Also, the physical stocks and flows like the matter and energy as well as their interactions within the economy in the society. This further explains the physical flow matrix that captures the energy and matter and the physical stock-flow matrix capturing the flow and the stock (Tom, & David, 2018). These variations, and particulars rely on the law of thermodynamics discussed in macroeconomy. Arguably, the mitigation costs as a key issue here does not underate the resource allocation and growth provided by the green subsidies policies. The climate catastrophe positively impacts the green subsidies policies by inducing new facilities reconstruction and resources in the industry thereby mitigating the climate. It leads to investment plans that incorporates new resources in companies especially those that leads to clean energy acquisition. Credit provisions also promotes the financing of the green investment, hence, clean energy and poisonous gas elimination.
SFC model ‘to some extent’ is also known to incorporate the green subsidies policy to mitigate climate. This is seen where a combination of green subsidies and carbon taxes usefully produces clean energy for industrial use. The green subsidies are products receivables realized when carbon taxes are recycled. The green public investment also is a consideration factor that helps to attain a favorable climate needed. This is realized in cases where the governmental green investments increase from a lower percentage of about 0.2% to as high as 1%. Approximately, this is an increase of about a fifth of what was there before and it is, therefore, acting as a motivational factor (Lutz, Becker, & Kemmler, 2021). SFC models analyses the reliable, efficient, and sufficient policies for climate mitigation. Its approaches lead to clean energy production and new resources allocation that equally facilitates employment rates in the industry. Therefore, despite other facts neglection by SFC model, it’s still incorporating green subsidies useful in climate mitigation.
Dynamic Stochastic General Equilibrium (DSGE) Model and Key Theoretical underpinnings
The channels effects in the environmental and macroeconomic variables are mainly through the technological developments available in the country. For instance, the effects emerge in scenarios where the media advancement is poor in the industries. Some companies fail to adopt to new technologies and these creates negative impacts on the macroeconomic and environmental variables (Kiarsi, & Masoudi, 2022). This is because such failures lead to slow, poor, and unreliable operations in the industry. Traditional media applications in macroeconomy leads to the neglection of new policies. This is as a result of time taken for new developments and reinforcement due to late information deliveries. People get delayed information that takes time to adopt to. Lack of computers, laptops and technical machinery also delays the rate of communication and policy making. In return, the resultant effects have a greater weight on the macroeconomic factors, variables and environmental at large.
Both SFC, Ecological, and DSGE model incorporate carbon taxes, and green subsidies in climate mitigation. They employ approaches that favors the two policies to promote climatic change eradication in the environment. These models look for ways of appropriate measure standards necessary for economic developments (Drudi, et al., 2021). They give some aspects that tries to eliminate issues that could otherwise prevail in the industry. Both models look for possible ways to eliminate high costs and climate damaging factors. Similarly, the models are both effective in ensuring economic growth favoring the businesses and its workers at large.
SFC model neglects consumption and production facts hence energy and matter are not available in the model while in the ecological macroeconomic modelling, the reverse is true. Ecological macroeconomic modelling accepts that the economic activity creates waste production which is the opposite of what the SFC agrees with. SFC neglects environmental problems like water scarcity, loss of biodiversity, and deforestation whereas ecological modelling incorporates all these environmental issues in its study (Battiston, Dafermos, & Monasterolo, 2021). The E-DSGE in DSGE model fail to capture financial issues while the ecological and SFC models captures all the financial issues as reflected in the carbon taxes and resources investment and reconstruction respectively.
Other: Graphical Representation
The graph gives an illustration of how when the climate becomes unstable it can be stabilized. This is estimated through equilibrium application factors that stabilize the climate changes to achieve the one. In the horizontal section, the no stable fixed point means that at this particular level, there are no stability meaning these points are infinite. These are infinity levels where the calculations are given infinite symbols. At the top level, the climate might become unstable and the interest and deposits made are used to stabilize them. These are where monetary or financial fiscals become necessary.
Brief Discussion on Green Subsidies
Conclusion
In summary, discussed the two selected policies, that is, carbon taxes and green subsidies. The policies were the mainstream and heterodox macroeconomic model policies for analysis and evaluation purposes. Carbon taxes is a microeconomic or financial policy that reduces the climate. The policy was recommended by the government to enable the carbon emitters to pay the set prices for the greenhouse emission tones. In the ecological macroeconomic model, carbon taxes help to mitigate the climate in a more standardized approach. The macroeconomic models supporting carbon tax policy are SFC, DSGE, and ecological macroeconomic model. DSGE macroeconomic model was found to extensively incorporate E-DSGE. In addition, the other policy is green subsidies, a macroeconomic or financial policy that also mitigates the climate. The SFC, DSGE, and ecological macroeconomic models incorporates this policy type also to ensure that climate is mitigated. It promotes the resources allocation to ensure the presence of clean energy in the industries.
References
Battiston, S., Dafermos, Y., & Monasterolo, I. (2021). Climate risks and financial stability. Journal of Financial Stability, 54, 100867.
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Hafner, S., Anger-Kraavi, A., Monasterolo, I., & Jones, A. (2020). Emergence of new economics energy transition models: A review. Ecological Economics, 177, 106779.
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McKibbin, W. J., Morris, A. C., Wilcoxen, P. J., & Panton, A. J. (2020). Climate change and monetary policy: issues for policy design and modelling. Oxford Review of Economic Policy, 36(3), 579-603.
Metcalf, G. E., & Stock, J. H. (2020, May). Measuring the macroeconomic impact of carbon taxes. In AEA papers and Proceedings (Vol. 110, pp. 101-06).
Nong, D., Simshauser, P., & Nguyen, D. B. (2021). Greenhouse gas emissions vs CO2 emissions: Comparative analysis of a global carbon tax. Applied Energy, 298, 117223.
Ruben, KJ., Morris, A. C., David, P. J., & Panton, A. J. (2020). Climate change and monetary policy: issues for policy design and modelling. Oxford Review of Economic Policy, 36(3), 579-603.
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