Is greenhouse gas emission a negative externality?

Answer 1

Yes. Economics describe a negative, or detrimental, externality as the result of activities that cause damage to others with no corresponding compensation paid by those who generate the externality. Environmental damage has long been defined as a detrimental externality, and greenhouse emissions are among the most challenging to correct.

Economics offers three possible solutions to environmental externalities:

1. Voluntary programs, which rely on the goodwill of business owners.
2. Direct controls, which either impose legal ceilings on the amount any business is permitted to emit (eg 'cap and trade'), or which specify which activities are prohibited, as well as those that must be implemented, such as carbon sequestration.
3. Taxes on emissions, or other monetary incentives or penalties, to make it financially attractive to reduce environmental damage.

Answer 2

Yes, greenhouse gas emissions are considered a negative externality because their impacts, such as global warming and climate change, are not reflected in the cost of production or consumption of goods and services. This leads to an inefficient allocation of resources and imposes costs on society and future generations.