Avoiding unintended consequences in climate policy

Luke Warren

August 3, 2020

The case to take action against climate change is incredibly powerful. The debate has shifted from being one between those who believe in climate change and those who deny it to what is the best means to tackle climate change. Most countries have passed environmental laws to preserve their habitats and wildlife. Although they may be implemented with altruistic reasons, the risk of secondary and tertiary impacts, called ‘unintended consequences’, are abundant.

Government interventions, whether they be rules, regulations, legislation or taxation, are incredibly susceptible to unintended consequences and are apparent in virtually every scheme or project led by governments. Such consequences have proven to be detrimental to achieving environmental objectives or severely restrict businesses.

Common features of such legislation include phasing out certain substances, enforcing producer responsibilities in production, waste collection and recovery of the product, requirements on the use of certain substances, and the end-of-life clause for certain products.

For example, in 2001, the government introduced a sliding scale for car tax or vehicle excise duty (VED) to make diesel cars, which emitted less carbon dioxide, cheaper. However, the ‘dash-to-diesel’ led to an increase in nitrogen dioxide emissions, as well as other potentially dangerous particulates.

Not all unintended consequences of environmental legislation are on the environment. For example, in 1993, the chancellor of the exchequer added a value-added tax on domestic fuel in an attempt to reduce emissions and control global warming. This had a significant effect on the poorest in society, who were already living in poorly insulated houses and were unable to afford the higher prices.

Other government policies that have had unintended consequences include the prescribing of environmentally friendly materials for certain products. While firms and businesses may well replace materials with environmentally friendly ones, there is a significant indirect impact on the environment when inefficient technologies for processing such materials have led to increased use of energy, threatening to negate any environmental gains that governments may seek to make.

Not all unintended consequences are negative, nor are they exclusive to governments. Take, for example, ships that sink in shallow waters either during war or due to an accident. Many have, over the years, become artificial coral reefs, which are valued by divers, marine biologists and tourists. Retired ships have been purposely sunk in light of this discovery in an effort to replace coral reefs that have been lost, damaged or destroyed.

Markets and businesses are susceptible to unintended consequences. However, markets lead, as Hayek said, to “a more efficient allocation of societal resources than any design could achieve”. Incentives businesses have in conducting their business simply do not exist in the same manner for governments, which in part explain the disparity in unintended consequences.

We should better appreciate how businesses maintain a different, arguably stronger, form of accountability with their customers as a consequence of competitive markets than what exists between government and citizens.

The private sector will, therefore, be essential in tackling climate change to deliver innovative, eco-friendly products to an increasingly environmentally aware consumer base. Take for example Patagonia, which has increasingly been using green branding, such as building repair centres around the world to increase the longevity of their products and thus lower their carbon footprint. Such changes do not necessarily need to be precipitated by government regulation or legislation which, of course, often does not achieve what it initially set out to.

As our government takes action to tackle climate change, further considerations should be made into the consequences of policies, no matter how altruistic they may seem. Combining sensible and well thought out regulations and legislation whilst simultaneously releasing and harnessing the innovative and flexible nature of the private sector is the most plausible means of effectively tackling climate change whilst limiting the risk of unintended consequences.


Written by Luke Warren

Luke Warren is a Senior Account Executive at BCW Global


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