[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

Hydroelectric power being generated at the Grand Coulee Dam.
1992 to work toward limiting the growth of greenhouse gases; in a subsequent meeting
in 1997, in Kyoto, Japan, an effort was made to strengthen the international commitment
to greenhouse gas reductions. In order for it to take effect, the Kyoto
agreement had to first be ratified by countries that account for at least 55 percent
of the world’s greenhouse gas emissions. While President Bill Clinton supported the
aims of the Kyoto agreement, he did not submit it for approval to the Senate, where
it faced certain defeat; and in 2001 President George W. Bush announced that he
opposed the treaty, effectively ensuring that the United States would not ratify
the agreement. It eventually did take effect in early 2005 after being ratified by
Russia. The agreement commits industrialized nations to make significant cuts in
emissions by 2012.
From an economic perspective, the principle of substitution is at the heart of
the problem of greenhouse gas reductions. Slowing down the rate of increase in
greenhouse gases entails using less energy, and substituting away from sources of
energy that produce large amounts of greenhouse gases, like coal, toward sources
of energy that produce less, like natural gas, or even none at all, like hydroelectric
power. Increasing the cost of greenhouse gas–producing energy sources by, for example,
imposing a tax on fuels in proportion to how much they contribute to greenhouse
gases would create an incentive for firms to substitute alternative energy
sources that produce fewer greenhouse gases.
Wrap-Up
THE PRINCIPLE OF SUBSTITUTION
An increase in the price of an input will lead the firm to substitute other inputs
in its place.
PRODUCTION WITH MANY FACTORS ∂ 149