Market and Good Environment—A Realistic Solution to Climate Problems


This essay will discuss the pros and cons of the market mechanism being used to address climate problem as well as the economics theory behind it. In response to Naomi Klein’s scorching critique of market mechanism (Capitalism), this essay will also stress in comparing her idealistic solution to climate problem with the market-based solution illustrated in this essay and convince the readers that market mechanism is a more realistic solution.

Topic sentence: The market mechanism is not a futile solution to climate problem as Naomi Klein has stated in This Changes Everything, but a realistic solution based on solid economic theory.


A. Economic Theory and Principle of Solving a Social Problem

The self-interest model of humanity

Market efficiency

Coase Theorem

Implementation of emission trading market

B. Case Study: The Acid Rain Program (a successful emission trading market)

1. Background of the Acid Rain Program

Success of the Acid Rain Program

C. Comparison between Naomi Klein’s solution and market-based solution

1. Flaws in Naomi Klein’s argument

a) Logical Fallacies

b) Not incentive-compatible (Free-rider problem)

Necessity of market economy in real world (exp. China Economics Reform)

D. Evaluation of the disadvantages of market-based solution

1. Another case study: EU-ETS

2. Potential technical problem of emission trading scheme


A. Even though market mechanism has several disadvantages that make it imperfect and sometimes disappointing, it is still a realistic and viable solution to environmental problems. On the other hand, Naomi Klein’s solution actually is over-idealistic since it violates the economic theory and is not incentive-compatible.

B. In the future, people should focus on innovating market-based solution to environmental problems as well as developing a suitable environment for market trading through regulation, negotiation, and legislation.



Cap and trade is the most cost-effective way to reduce emissions. Fern, n.d. Web. 13 Mar. 2016.

Environmental Protection Agency. Cap and Trade: Acid Rain Program Results. n.d. PDF file.

Fox, Justin. “How the Dismal Science Stopped Being Dismal.” Rev. of Grand Pursuit: The Story of Economic Genius, ed. Sylvia Nasar. Sunday Book Review Oct. 9 2011: BR22. Print.

Friedman, Milton. “Living Within Our Means.” Interview with Open Mind. By Richard Heffner. New York City: WPIX Channel 11 Dec. 7 1975. TV.

Grubb, Michael, et al. Analyses of the effectiveness of trading in EU-ETS. Climate Strategies, 2012. PDF file.

Klein, Naomi. This Changes Everything: Capitalism vs. the Climate. New York: Simon & Schuster, 2014. Print.

Morrison, Wayne. China’s Economic Rise: History, Trends, Challenges, and Implication for the United States. Congressional Research Service, 2015. PDF file.

Sandor, Richard. Good Derivatives: A Story of Financial and Environmental Innovation. Hoboken: John Wiley & Sons, 2012. Print.

Shiller, Robert. Finance and the Good Society. Princeton: Princeton UP, 2012. Print.

Shiller, Robert. “Putting Idealism to Work on Climate Change.” New York Times Mar. 29 2015 New York ed.: BU6. Print.

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