In this chapter, we present the major market failures and behavioural anomalies that are relevant to analyse energy and climate issues from an economic point of view. We start with a discussion on positive and negative externalities; next we discuss the public goods and common resource problem, followed by a presentation of the principal–agent and information problems, and then we provide a summary of the role of lack of competition in energy and energy-related markets. An important aspect described in this chapter is the role of behavioural anomalies, such as bounded rationality and bounded willpower. At the end of the chapter, we describe the most important energy and climate policies as well as the concept of sustainable development that should guide policy design. We also discuss issues in developing countries related to the topics discussed in the chapter.

White settlers domesticated water by shaping and regulating natural water features into systems of dams, piped networks, and waste disposal facilities. Clean water is a common resource when there is no restriction on its use, and each use of the resource makes less available to others. Overuse of common water resources was an early feature of the five cities, and effective solutions were the product of democratic institutions that empowered citizens to take collective action and express demands for improved infrastructure. In Sydney, Melbourne, and Adelaide, sanitary reform through investment in networked water infrastructure in response to the threat of cholera was underway by the mid-nineteenth century; the development of effective sewerage was delayed by the costs of extension across large metropolitan areas and the fragmentation of political authority between local councils. The smaller cities, Brisbane and Perth, were slower to invest, and water supplies continued to be unreliable and subject to pollution from cesspits. By the start of the twentieth century, variations in water infrastructure systems reflected the path-dependent nature of earlier solutions, which would constrain the options available to future decision makers.

Intuitively, much research in commons research focuses on collaborative governance of environmental resources. At the same time, due to the pressures of climate change, the number of natural disasters will only increase, and humanitarian crises are already on an uptake. As a result, I aim to extend this line of inquiry in my discussion of humanitarian aid as a shared and contested common resource. I take the example of the 2013–2016 West Africa Ebola Epidemic, which occurred along the border of three countries with different institutional histories.Drawing on interviews with 100 civil society organizations and domestic NGOs, I illustrate how top-down management of the 2013–2016 Ebola Response by governmental and international organizations led to policy failure, only until local organizations were involved. Ebola unveils the inefficiency of neglecting local actors, typical in international humanitarian response. In addition, contestation of humanitarian aid resources viewed as “commons” by recipients and “private” by international aid organizations fuels tensions in the aid relationship, and particularly during a crisis where local buy-in is essential.