Logo Trop1 (1)

Climate Change- A Market Failure


A reading titled ‘Why do economists describe climate change as a market failure?’ by Alex Bowen, Simon Dietz and Naomi Hicks, that discusses how since climate change does not maximise societal welfare, it is a market failure. The reading focuses on the ‘greenhouse-gas externality’ that describes the indirect impact of climate change on future generations and in developing countries. The reading also discusses the implications of externalities and market failures for economic policies to reduce carbon emissions and switch to low-carbon technologies.

Students will learn about how climate change can influence markets and policies. They will also learn about externalities, market failures and low-carbon initiatives. Students will further learn about how market failures and externalities can influence economic policies with regards to climate change.

Use this tool to help your students find answers to:

  1. How does market failure affect the environment?
  2. What is the ‘greenhouse-gas externality’?
  3. How do market failures influence economic policies?
About Tool
Tool NameWhy do economists describe climate change as a market failure? 
Topic(s) in DisciplineMarket Failure, Carbon Pricing, Carbon Tax, Externalities, Emissions Trading System (ETS), Environmental Protection
Climate TopicClimate Economics
Type of toolReading 
Grade LevelUndergraduate
Translation     –
Developed byAlex Bowen, Simon Dietz and Naomi Hicks
Hosted atGrantham Research Institute on Climate Change and the Environment at The London School of Economics and Political Science (LSE)
Computer SkillsBasic


To Subscribe to our newsletter please enter