In 2023 and 2024, the world has recorded recordbreaking temperatures, most of the time 1.5°C or more above preindustrial levels. Undeniably attributable to human activity and boosted by the natural phenomenon of the El Niño effect that warms the ocean surface, the world is warming at an unprecedented rate.

The emissions we produce through the burning of fossil fuels in the pursuit of economic activity – industrial production, consumption, travel, farming and heating our homes – are driving the planet towards extinction. Our modern lifestyles are to blame for accelerating the problem. Lifestyles that have been made possible through the economic system we have developed to enrich our society. The system of capitalism (the process of wealth creation through profit making), which underpins our economies, is organized through markets that balance demand and supply through price. Is it possible for this market capitalist system to now be used effectively to confront the climate crisis and mitigate the effects of global warming? Given Adam Smith's “invisible hand” theory, which posits that individual profit-seeking behaviour naturally steers economies towards the optimal distribution of resources, can we realistically expect this mechanism to drive a significant reduction in emissions?

Evidently, the market left to its own devices is insufficient to address the climate crisis. A fact that has been acknowledged by economists for some time. Indeed, major market failures are due to “externalities”, which are the effects of market activity that impose a cost on a third party, such as ill health through breathing the polluted air emitted during the manufacture of a specific product. In scenarios where externalities exist, market outcomes in which the social cost inflicted is not included in the cost of the product keep prices low and demand high, leading to overproduction of both product and pollution. If, however, the social cost of these externalities is added to the production costs, it would drive up the consumer price reducing the amount demanded by the market. The manufacturer would then curb its level of production and consequently its pollution emissions, leading to a reduction in health-related problems in society. This internalization is not likely to be a voluntary act, per Adam Smith's dictum, but one that must be required by law.