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The obvious question that arises from our discussion so far is this: who gets to make decisions about the environment?  We have seen that the environment is not really owned by any one, and as such it is managed by the government by default.  What are the consequences of this decision?

The OECD has found that countries tend to show a higher level of interest in preserving their environment when they have achieved a higher standard of living for the population.  Developed countries like Australia tend to be very keen to achieve sustainability.  On the other hand, developing countries (such as China and India) have different priorities.  These countries are still trying to generate employment for all of the people in their populations, and as such the idea of limiting production by imposing restrictions is undesirable.

Obviously this is another situation in which there are negative externalities.  As production in China increases, so does the amount of pollution created in that country.  Current estimates suggest that soon after 2010, China will be the largest producer of pollution in the world.  It is worth noting that China is not a signatory to the Kyoto Protocol, and it never was.  When this environmental agreement was first struck in 1994, no one foresaw the incredible growth that was about to occur in that country.

With global warming becoming an international problem, perhaps the decision making power should shift to an international authority.  We have established that individuals (and therefore businesses) will cause negative externalities through their desire to promote their own self interest.  Governments are limited by the economic standards currently being experienced in their country.  An international body could overcome these problems.

Unfortunately at this time there is no way to establish such a body.  There are already countless international organisations, and each has a different area of responsibility.  Each time a new international agreement is reached, many years are spent ensuring that the agreement is legally possible given the myriad of existing arrangements.  For example, the Australia United States Free Trade Agreement (AUSFTA) progressed very quickly, but even that took four years of negotiations between just two countries.  By the time all of the world’s countries agreed to adopt standardised international laws in regards to the environment, the damage will already be beyond repair.

This means that the decisions will need to be made in individual countries.  It does not mean, however, that international pressure won’t work.  In fact, world governments are under constant pressure from a variety of sources to ensure the long term sustainability of our lifestyle.

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