Wednesday, April 21, 2010

Economic Freedom: A No-Regrets Strategy for Reducing Global Energy Consumption

Many environmentalists claim that governmental policies are the
solution to achieving greater energy efficiency and lower
greenhouse gas emissions. The same groups often claim
economic growth and lack of comprehensive environmental
regulations have created a society that wastes energy and pays no
regard to greenhouse gas emissions per unit of production. To the
contrary, this empirical study reveals a different relationship
between greenhouse gas intensity, energy intensity and economic
freedom. The conclusions challenge the notion that top-down
government regulation is needed to foster energy efficiency and
lower carbon intensity. In fact, countries with higher levels of
economic freedom are associated with lower greenhouse gas
emissions and energy use per dollar of gross domestic product.
This is mainly due to the competitive pressures of the free market
continuously pushing the entire economy to become more

Competition fostered by limited government and free markets
guides all entities within the economy to continuously update,
reform, and analyze the way business is done in order gain
market share and profits. Although there is no intrinsic profit
incentive for decreasing greenhouse gas emissions, the push to
lower energy costs leads to lower amounts of greenhouse gas
emissions per dollar of gross domestic product. This is because of
the close relationship between energy intensity and greenhouse
gas intensity.

Free Markets, Efficient Allocation of
Resources, and Greenhouse Gas Emissions

Economic freedom is known to have a profound effect on the
efficient allocation of resources. Without subsidies, tariffs, and
other government interventions, economic activity operates in
the most efficient manner because of competitive pressures to
produce more with fewer inputs. This means that energy use per
unit of production is decreased with the presence of free markets.
Free markets also can lead to a decrease in greenhouse
gas emissions per unit of production due to the same competitive
pressures that force a more energy efficient production process.

Review detailed study and conclusions here.

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