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Posts Tagged ‘environmental policy’

The Great Barrier Reef: a tragedy in the making

Australia held a general election on 2 July 2016. The Liberal/National coalition narrowly won in the House of Representatives, gaining a substantially reduced majority of 77 of the 150 seats, to Labor’s 68 and other parties’ 5 seats. One campaign issue for all parties was the destruction of the Great Barrier Reef, which is seen as an environmental disaster. Each party had proposals for tackling the problem and we examine some of them here.

The Great Barrier Reef is the largest coral reef in the world. As the BBC’s iWonder guide states:

One of the world’s seven natural wonders, the Great Barrier Reef contains some 900 islands and 3000 smaller reefs. It is larger than the UK, the Netherlands and Switzerland combined, home to around 10% of the world’s marine fish, over 200 bird species and countless other animals, including turtles and dolphins.

But this iconic Reef system is facing unprecedented threats. Together with governments, scientists are playing a key role in the battle to preserve this vulnerable ecosystem before it’s too late.

The Reef is 2300km long. In the northern third, around half of the coral is dead. Few tourists see this, as they tend to dive in the southern third, which, being cooler, is less affected.

The bleaching and destruction of coral reefs has a number of causes. These include: rising water temperatures, generally from global warming and more extreme El Niño events (rising warm waters that periodically spread across the Pacific); pollution, including that from coal mining, industrial effluent and run-off of pesticides, herbicides, fertilisers and sediment from farming, leading to acidification of waters; more frequent and more violent cyclones; rapidly expanding numbers of coral-eating Crown of Thorns starfish; and over fishing of some species of fish, leading to knock-on effects on ecosystems.

The Barrier Reef and the oceans and atmosphere around it can be regarded as a common resource. The warming of the atmosphere and the oceans, and the destruction of the reef and the wildlife on it, are examples of the ‘tragedy of the commons’. With no-one owning these resources, they are likely to be overused and abused. Put another way, these activities cause negative externalities, which do not appear as costs to the polluters and despoilers, but are still costs to all who treasure the reef. And, from a non-human perspective, it is a cost to the planet and its biodiversity. What is in the private interests of the abusers is not in the social or environmental interest.

The Australian government had sought to downplay the extent of the problem, afraid of deterring tourists – a valuable source of revenue – and under pressure from the coal and farming industries. Nevertheless, in the run-up to the election, the destruction of the Reef and what to do about it became a major debating point between the parties.

The Coalition government has pledged A$1bn for a new Reef fund, which will be dedicated to tackling climate change and water quality.

The fund will also help coastal sewage treatment plants to reduce ocean outfalls with efficient pumps, biogas electricity generation and next-generation waste water treatment. Improving water quality will enhance the Reef’s resilience to climate change, coral bleaching and outbreaks of the destructive crown of thorns starfish.

But how much difference the fund can make with the money it will have is not clear.

The Labor Party pledged to follow every recommendation in the Great Barrier Reef Water Science Taskforce’s Final Report, released in May, and to pass laws to prevent farm pollution flowing into the waters around the Reef and to have a more rapid shift towards renewable energy.

The Green Party goes the furthest. In addition to the Labor Party’s proposals, it wants to impose taxes on coal firms equal to the cost of the damage they are causing. The tax revenues would be paid into a multi-billion dollar fund. This would then be spent on measures to rescue the Reef, invest in clean energy projects, stop damaging industrial development, improve farm management and stop polluted run-off into the Reef catchment area by investing in water systems.

Promises at the time of an election are all well and good. Just how much will be done by the re-elected Coalition government remains to be seen.

Interactive Videos and presentations
David Attenborough’s Great Barrier Reef: an Interactive Journey, Atlantic Productions, David Attenborough (2015)
Global Warming – the greatest market failure Prezi, Yvonne Cheng (5/12/12)

The Great Barrier Reef: a catastrophe laid bare The Guardian, Michael Slezak (7/6/16)
The Guardian view on the Great Barrier Reef: the crisis they prefer to downplay The Guardian (7/6/16)
Fight to save Great Barrier Reef could cost billions, secret government modelling estimates ABC News, Mark Willacy (2/6/16)
Great Barrier Reef: government must choose which parts to save, says expert The Guardian, Joshua Robertson (8/7/16)
This election, what hope is there for the Great Barrier Reef? The Guardian, Michael Slezak (1/7/16)
Coalition will protect Great Barrier Reef with $1bn fund, says PM The Guardian, Gareth Hutchens (12/6/16)
Great Barrier Reef election explainer: how do the parties compare? The Guardian, Michael Slezak (2/6/16)
Five things we can do right now to save the Great Barrier Reef The Guardian, John Pandolfi (13/6/16)
We’ve scored the parties on the Reef My Sunshine Coast, Australian Marine Conservation Society (29/6/16)
Our Most Iconic Places Are Under Dire Threat From Climate Change Huffington Post, Nick Visser (26/5/16)
There are bright spots among the world’s coral reefs – the challenge is to learn from them The Conversation, Australia, Joshua Cinner (21/7/16)


  1. Explain what is meant by the Tragedy of the Commons. Is all pollution damage an example of this?
  2. What can the Australian government do to internalise the external costs to the Great Barrier Reef from (a) farming; (b) mining; (c) global warming?
  3. Why is it difficult to reach international agreement on tackling climte change? What insights can game theory provide for understanding the difficulties?
  4. What are the recommendations in the Final Report of the Great Barrier Reef Water Science Taskforce? What mix of tools does it suggest?
  5. What are the relative advantages and disadvantages of taxation, laws and regulations, public investment, education and international negotiation as policy instruments to protect the Reef?
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An historic agreement at the Paris climate change conference

After two weeks of negotiations between the 195 countries attending the COP21 climate change conference in Paris, a deal has been reached on tackling climate change. Although the deal still has to be ratified by countries, this is a major step forward in limiting global warming. Before it can formally come into force, it must have been ratified by at least 55 countries, accounting for at least 55% of global greenhouse gas emissions.

The deal goes much further than previous agreements and includes the following:

  A limit on the increase in global temperatures to ‘well below’ 2°C above pre-industrial levels and efforts pursued to limit it to 1.5°C.
A recognition that the pledges already made ahead of the conference by 186 countries and incorporated into the agreement are insufficient and will only limit global temperature rise to 2.7°C at best.
Countries to update their emissions reductions commitments every five years – the first being in 2020. Such revised commitments should then be legally binding.
A global ‘stocktake’ in 2023, and every five years thereafter, to monitor countries’ progress in meeting their commitments and to encourage them to make deeper cuts in emissions to reach the 1.5°C goal. This requires a process of measurement and verification of countries’ emissions.
To reach a peak in greenhouse gas emissions as soon as possible and then to begin reducing them and to achieve a balance between sources and sinks of greenhouse gases (i.e. zero net emissions) in the second half of this century.
Developed countries to provide the poorest developing countries with $100bn per year by 2020 to help them reduce emissions. This was agreed in Copenhagen, but will now be continued from 2020 to 2025, and by 2025 a new goal above $100bn per year will be agreed.
The development of market mechanisms that would award tradable credits for green projects and emissions reductions.
A recognition that the ‘loss and damage’ associated with climate-related disasters can be serious for many vulnerable developing countries (such as low-lying island states) and that this may require compensation. However, there is no legal liability on developed countries to provide such compensation.

Perhaps the major achievement at the conference was a universal recognition that the problem of global warming is serious and that action needs to be taken. Mutual self interest was the driving force in reaching the agreement, and although it is less binding on countries than many would have liked, it does mark a significant step forward in tackling climate change.

But why did the conference not go further? Why, if there was general agreement that global warming should be tackled and that global temperature rise should ideally be capped at 1.5°C, was there not a binding agreement on each country to apply this cap?

There are two reasons.

First, it is very difficult to predict the exact relationship, including its timing, between emissions and global temperature rise. Even if you could make limits to emissions binding, you could not make global temperature rise binding.

Second, even if there is general agreement about how much emissions should be reduced, there is no general agreement on the distribution of these reductions. Many countries want to do less themselves and others to do more. More specifically, poor countries want rich countries to do all the cutting while many continue to build more coal-fired power stations to provide the electricity to power economic development. The rich countries want the developing countries, especially the larger ones, such as China, India and Brazil to reduce their emissions, or at least the growth in their emissions.

Then there is the difference between what countries vaguely pledge at a global conference and what they actually do domestically. Many developed countries are keen to take advantage of currently cheap fossil fuels to power economic growth. They are also still investing in alternative sources of fossil fuels, such as through fracking.

As we said in the previous blog, game theory can shed some useful insights into the nature and outcome of climate negotiations. ‘The global optimum may be for a strong agreement, binding on all countries. The Nash equilibrium, however, may be a situation where countries push for their own interests at the expense of others, with the final agreement being much more minimalistic.’

‘Minimalistic’ may be too strong a description of the outcomes of the Paris conference. But they could have been stronger. Nevertheless, judged by the outcomes of previous climate conferences, the deal could still be described as ‘historic’.

With landmark climate accord, world marks turn from fossil fuels Reuters (13/12/15)
COP21 climate change summit reaches deal in Paris BBC News (13/12/15)
COP21: Paris climate deal is ‘best chance to save planet’ BBC News (13/12/15)
COP21: Climate change deal’s winners and losers BBC News, Matt McGrath (13/12/15)
The Five Key Decisions Made in the UN Climate Deal in Paris Bloomberg, video: Nathaniel Bullard; article: Ewa Krukowska and Alex Morales (12/12/15)
The key factors in getting a deal in Paris BBC News on YouTube, Tom Burke (13/12/15)

COP21 agreement: All you need to know about Paris climate change deal Hindustan Times, Chetan Chauhan (13/12/15)
COP21: Paris agreement formally adopted Financial Times, Pilita Clark and Michael Stothard (12/12/15)
Let’s hail the Paris climate change agreement and get to work Financial Times, Jeffrey Sachs (12/12/15)
COP21: Public-private collaboration key to climate targets Financial Times, Nicholas Stern (13/12/15)
Paris climate change agreement: the deal at a glance The Telegraph, Emily Gosden (12/12/15)
Climate Accord Is a Healing Step, if Not a Cure New York Times, Justin Gillis (12/12/15)
Paris Agreement Ushers in End of the Fossil Fuel Era Slate, Eric Holthaus (12/12/15)
Paris Agreement: the reaction Business Green, James Murray and Jessica Shankleman (12/12/15)
World’s First Global Deal to Combat Climate Change Adopted in Paris Scientific American, David Biello (12/12/15)
COP21: Paris climate deal ‘our best chance to save the planet’, says Obama Independent, Tom Bawden (13/12/15)
Grand promises of Paris climate deal undermined by squalid retrenchments The Guardian, George Monbiot (12/12/15)
Paris Agreement on climate change: the good, the bad, and the ugly The Conversation, Henrik Selin and Adil Najam (14/12/15)
COP21: James Hansen, the father of climate change awareness, claims Paris agreement is a ‘fraud’ Independent, Caroline Mortimer (14/12/15)
Paris climate agreement: More hot air won’t save us from oblivion Sydney Morning Herald, Peter Hartcher (15/12/15)

Draft Agreement
Adoption of the Paris Agreement United Nations Framework Convention on Climate Change (12/12/15)


  1. Could the market ever lead to a reduction in greenhouse gas emissions? Explain.
  2. What are the main strengths and weaknesses of the Paris agreement?
  3. Is it in rich countries’ interests to help poorer countries to achieve reductions in greenhouse gas emissions?
  4. How might countries reduce the production of fossil fuels? Are they likely to want to do this? Explain.
  5. Is a ‘cap and trade’ (tradable permits) system (a) an effective means of reducing emissions; (b) an efficient system?
  6. What is the best way of financing investment in renewable energy?
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A changing climate for a deal?

The Paris Climate Change Conference (COP21) is under way. At the opening on November 30, 150 Heads of State gathered in Paris, most of whom addressed the conference. With representatives from 195 countries and observers from a range of organisations, the conference is set to last until 11 December. Optimism is relatively high that a legally binding and universal agreement will be reached, with the aim of keeping global warming below 2°C – what is generally regarded as a ‘safe’ limit.

But although it is hoped that a successor to the Kyoto Protocol of 1997 will be put in place, there are many problems in getting so many countries to agree. They may all wish to reduce global warming, but there is disagreement on how it should be achieved and how the burden should be shared between countries.

There are several difficult economic issues in the negotiations. The first is the size and impact of the external costs of emissions. When a country burns fossil fuels, the benefits are almost entirely confined to residents of that county. However, the environmental costs are largely external to that country and only a relatively small fraction is borne by that country and hardly at all by the polluters themselves, unless there is a carbon tax or other form or penalty in place. The problem is that the atmosphere is a common resource and without collective action – national or international – it will be overused.

The second problem is one of distribution. Politicians may agree in principle that a solution is necessary which is equitable between nations, but there is considerable disagreement on what is meant by ‘equitable’ in this context. As the third Guardian article below puts it:

The most important hurdle could be over whether industrialised countries like the US, UK and Japan, which have contributed the most to the historical build-up of emissions, should be obliged to cut more than developing countries. India, on behalf of many poor countries, will argue that there must be “differentiation” between rich and poor; but the US wants targets that are applicable to all. A collision is inevitable.

A third problem is that of uncertainty. Although there is general agreement among scientists that human action is contributing to global warming, there is less agreement on the precise magnitude of the causal relationships. There is also uncertainty over the likely effects of specific emissions reductions. This uncertainty can then be used by governments which are unwilling to commit too much to emissions reductions.

A fourth difficulty arises from the intertemporal distribution of costs and benefits of emissions reductions. The costs are born immediately action is taken. Carbon taxes or charges, or subsidies to renewables, or caps on emissions, all involve higher energy prices and/or higher taxes. The flows of benefits (or lower costs), however, of reduced emissions are not likely to be fully experienced for a very long time. But governments, whether democratic or dictatorships, tend to have a relatively short time horizon, governed by the electoral cycle or the likelihood of staying in power. True, governments may not be solely concerned with power and many politicians may have genuine desires to tackle climate change, but their political survival is still likely to be a major determinant of their actions.

Of course, if there is strong public opinion in favour of action to reduce emissions, governments are likely to respond to this. Indeed, all the expressions of public support for action ahead of the conference from all around the world, do give some hope for a strong agreement at the Paris conference. Nevertheless, there is still widespread scepticism in many countries over the relationship between human action and climate change, and many argue that the costs of policies to tackle climate change exceed the benefits.

Game theory can shed some insights into the difficulties ahead for the negotiators. The global optimum may be for a strong agreement, binding on all countries. The Nash equilibrium, however, may be a situation where countries push for their own interests at the expense of others, with the final agreement being much more minimalistic.

There do, however, seem to be more reasons to be cheerful at this summit that at previous ones. But negotiations are likely to be hard and protracted over the coming days.

Videos and webcasts
Paris Climate Conference: The Big Picture Wall Street Journal on YouTube, Jason Bellini (30/11/15)
Why is the Paris UN climate summit important? PwC, Leo Johnson (14/10/15)
Paris climate change summit 2015: ‘the near impossible task’ Channel 4 News on YouTube, Tom Clarke (30/11/15)
COP21: Rallies mark start of Paris climate summit BBC News, David Shukman (29/11/15)
With climate at ‘breaking point’, leaders urge breakthrough in Paris Reuters, Bruce Wallace and Alister Doyle (1/12/15)
COP21: Paris conference could be climate turning point, says Obama BBC News (30/11/15)
Leaders meet to reach new agreement on climate change BBC News, David Shukman (30/11/15)
Poll: Growing Doubts Over Climate Change Causes Sky News, Thomas Moore (30/11/15)
Paris climate protesters banned but 10,000 shoes remain The Guardian (29/11/15)

COP-21 climate deal in Paris spells end of the fossil era The Telegraph, Ambrose Evans-Pritchard (29/11/15)
Is there an economic case for tackling climate change? BBC News, Andrew Walker (28/11/15)
World Leaders in Paris Vow to Overcome Divisions on Climate Change Wall Street Journal, William Horobin and William Mauldin (30/11/15)
Experts discuss how to build a carbon-free energy industry The Guardian, Tim Smedley (25/11/15)
Africa could lead world on green energy, says IEA head The Guardian, Anna Leach (11/11/15)
Climate change talks: five reasons to be cheerful or fearful The Guardian, John Vidal (30/11/15)
The Paris climate change summit, explained in 4 charts The Washington Post, Philip Bump (30/11/15)
Why This Goal To Curb Climate Change ‘Is Not Ideal’ Huffington Post, Jacqueline Howard (30/11/15)
Paris climate change talks: What the different groups attending expect from these crucial meetings Independent, Tom Bawden (29/11/15)
UN Climate Change Conference: World Leaders Call For Price On CO2 Emissions Despite Uphill Battle At Paris Summit International Business Times, Maria Gallucci (30/11/15)
World Bank, six nations call for a price on carbon SBS (Australia) (1/12/15)
Uruguay makes dramatic shift to nearly 95% electricity from clean energy The Guardian, Jonathan Watts (3/12/15)


  1. Why is COP21 considered to be so significant?
  2. For what reasons is there hope for a binding agreement to limit global warming to 2°C?
  3. What would be the effect on global warming of the commitments made by more than 180 countries prior to the conference?
  4. What market failings contribute towards the problem of global warming?
  5. Why, if all countries want to achieve a binding agreement at the Paris conference, is it likely to be so difficult to achieve?
  6. Explain what is meant by a ‘Nash equilibrium’ and how the concept is relevant to international negotiations.
  7. Why is China investing heavily in solar power?
  8. Could Africa lead the world in green energy?
  9. Is a ‘cap and trade’ (tradable permits) system (a) an effective means of reducing emissions; (b) an efficient system?
  10. What is the best way of financing investment in renewable energy?
  11. How does the structure/order of the Paris conference differ from previous COPs? Is such a structure more likely to achieve substantial results?
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California’s new targets on greenhouse gas emission

The Governor of California, Jerry Brown, has issued an executive order to cut greenhouse gas emissions 40% from 1990 levels by 2030 (a 44% cut on 2012 levels). This matches the target set by the EU. It is tougher than that of the US administration, which has set a target of reducing emissions in the range of 26 to 28 percent below 2005 levels by 2025.

The former Governor of California, Arnold Schwarzenegger, had previously set a target of reducing emissions 80% below 1990 levels by 2050. Brown’s new target can be seen as an interim step toward meeting that longer-term goal.

There are several means by which it is planned to meet the Californian targets. These include:

a focus on zero- and near-zero technologies for moving freight, continued investment in renewables including solar roofs and distributed generation, greater use of low-carbon fuels including electricity and hydrogen, stronger efforts to reduce emissions of short-lived climate pollutants (methane, black carbon and fluorinated gases), and further efforts to create liveable, walkable communities and expansion of mass transit and other alternatives to travelling by car.

Some of these will be achieved through legislation, after consultations with various stakeholders. But a crucial element in driving down emissions is the California’s carbon trading scheme. This is a cap-and-trade system, similar to the EU’s Emissions Trading Scheme.

The cap-and-trade rules came into effect on January 1, 2013 and apply to large electric power plants and large industrial plants. In 2015, they will extend to fuel distributors (including distributors of heating and transportation fuels). At that stage, the program will encompass around 360 businesses throughout California and nearly 85 percent of the state’s total greenhouse gas emissions.

Under a cap-and-trade system, companies must hold enough emission allowances to cover their emissions, and are free to buy and sell allowances on the open market. California held its first auction of greenhouse gas allowances on November 14, 2012. This marked the beginning of the first greenhouse gas cap-and-trade program in the United States since the group of nine Northeastern states in the Regional Greenhouse Gas Initiative (RGGI), a greenhouse gas cap-and-trade program for power plants, held its first auction in 2008.

Since January 2014, the Californian cap-and-trade scheme has been linked to that of Quebec in Canada and discussions are under way to link it with Ontario too. Also California is working with other west-coast states/provinces, Oregon, Washington and British Columbia, to develop a co-ordinated approach to greenhouse gas reductions

To achieve sufficient reductions in emissions, it is not enough merely to have a cap-and-trade system which, through trading, encourages an efficient reduction in emissions. It is important to set the cap tight enough to achieve the targeted reductions and to ensure that the cap is enforced.

In California, emissions allowances are distributed by a mix of free allocation and quarterly auctions. Free allocations account for around 90% of the allocations, but this percentage will decrease over time. The total allowances will decline (i.e. the cap will be tightened) by 3% per year from 2015 to 2020.

At present the system applies to electric power plants, industrial plants and fuel distributors that emit, or are responsible for emissions of, 25,000 metric tons of carbon dioxide equivalent (CO2e) per year or more. The greenhouse gases covered are the six covered by the Kyoto Protocol ((CO2, CH4, N2O, HFCs, PFCs, SF6), plus NF3 and other fluoridated greenhouse gases.

California governor orders aggressive greenhouse gas cuts by 2030 Reuters. Rory Carroll (29/4/15)
California’s greenhouse gas emission targets are getting tougher Los Angeles Times, Chris Megerian and Michael Finnegan (29/4/15)
Jerry Brown sets aggressive California climate goal The Desert Sun, Sammy Roth (29/4/15)
California’s Brown Seeks Nation-Leading Greenhouse Gas Cuts Bloomberg, Michael B Marois (29/4/15)
California sets tough new targets to cut emissions BBC News, (29/4/15)
California’s New Greenhouse Gas Emissions Target Puts Obama’s To Shame New Republic, Rebecca Leber (29/4/15)
Governor Brown Announces New Statewide Climate Pollution Limit in 2030 Switchboard, Alex Jackson (29/4/15)
Cap-and-trade comes to Orego Watchdog, Chana Cox (29/4/15)
Cap and trade explained: What Ontario’s shift on emissions will mean The Globe and Mail, Adrian Morrow (13/4/15)
California’s Forests Have Become Climate Polluters Climate Central, John Upton (29/4/15)
States Can Learn from Each Other On Carbon Pricing The Energy Collective, Kyle Aarons (28/4/15)

Executive Order
Governor Brown Establishes Most Ambitious Greenhouse Gas Reduction Target in North America Office of Edmund G. Brown Jr. (29/4/15)
Frequently Asked Questions about Executive Order B-30-15: 2030 Carbon Target and Adaptation California Environmental Protection Agency: Air Resources Board (29/4/15)

Californian cap-and-trade scheme
Cap-and-Trade Program California Environmental Protection Agency: Air Resources Board (29/4/15)
California Cap and Trade Center for Climate and Energy Solutions (January 2014)


  1. Explain how a system of cap-and-trade, such as the Californian system and the ETS in the EU, works.
  2. Why does a cap-and-trade system lead to an efficient level of emissions reduction?
  3. How can a joint system, such as that between California and Quebec, work? Is it important to achieve the same percentage pollution reduction in both countries?
  4. What are countries coming to the United Nations Climate Change conference in Paris in November 2015 required to have communicated in advance?
  5. How might game theory be relevant to the negotiations in Paris? Are the pre-requirements on countries a good idea to tackle some of the ‘gaming’ problems that could occur?
  6. Why is a cap-and-trade system insufficient to tackle climate change? What other measures are required?
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A modern tragedy of the commons

In many parts of the world, life in the oceans is dying out. The term ‘dead zones’ is used to describe seas that are devoid of marine life. And these zones are growing in size and number.

It’s not just the decline in fish and other marine species that’s worrying environmentalists and many others; it’s a growth in rubbish. Part of this is caused by natural disasters, such as the 2011 Tsunami in Japan that washed huge amounts of debris into the Pacific Ocean. But much of it is caused by rubbish carried down rivers and into the seas, or rubbish jettisoned from ships. The problem is particularly acute in areas of the oceans where currents circulate the rubbish into huge rubbish dumps. There are two such areas either side of Hawaii in the Pacific. Both are vast.

The first article below tells the tale of Newcastle (Australia) yachtsman Ivan Macfadyen. He completed the 2013 Melbourne to Osaka double handed yacht race earlier this year as skipper of his yacht Funnelweb and then went on to bring the yacht home to Australia via America and race the famous Trans-Pac Yacht Race from Los Angeles to Hawaii along the way.

Exactly 10 years before, when [he] had sailed exactly the same course from Melbourne to Osaka, all he’d had to do to catch a fish from the ocean between Brisbane and Japan was throw out a baited line.

“There was not one of the 28 days on that portion of the trip when we didn’t catch a good-sized fish to cook up and eat with some rice,” Macfadyen recalled. But this time, on that whole long leg of sea journey, the total catch was two. No fish. No birds. Hardly a sign of life at all.

After reaching Osaka in Japan, they sailed on to San Francisco via Hawaii.

“After we left Japan, it felt as if the ocean itself was dead,” Macfadyen said. “We hardly saw any living things. We saw one whale, sort of rolling helplessly on the surface with what looked like a big tumour on its head. It was pretty sickening.”

“I’ve done a lot of miles on the ocean in my life and I’m used to seeing turtles, dolphins, sharks and big flurries of feeding birds. But this time, for 3000 nautical miles there was nothing alive to be seen.”

In place of the missing life was garbage in astounding volumes.

As economists, you should readily understand that here we have a case of over-exploited common resources – a Tragedy of the Commons of epic proportions. One ship’s rubbish may make a tiny difference, but when the cost of dumping is near zero and when the oceans are not policed, what is rational for a single ship becomes a disaster when repeated tens of thousands of times by other ships

Again, overfishing is the result of seemingly rational behaviour by crews of individual fishing boats. But as Economics (8th edition) points out on pages 328–30:

Common resources are not owned but are available free of charge to anyone. Examples include the air we breathe and the oceans for fishing. Like public goods, they are non-excludable. For example, fishing boats can take as many fish as they are able from the open seas. There is no ‘owner’ of the fish to stop them. As long as there are plentiful stocks of fish, there is no problem.

But as more people fish the seas, so fish stocks are likely to run down. This is where common resources differ from public goods. There is rivalry. One person’s use of a common resource diminishes the amount available for others. This result is an overuse of common resources. This is why fish stocks in many parts of the world are severely depleted, why virgin forests are disappearing (cut down for timber or firewood), why many roads are so congested and why the atmosphere is becoming so polluted (being used as a common ‘dump’ for emissions). In each case, a resource that is freely available is overused. This has become known as the tragedy of the commons.

… When I use a common resource, I am reducing the amount available for others. I am imposing a cost on other people: an external cost. If I am motivated purely by self-interest, I will not take these external costs into account.

Try doing some research to find out just what has been happening to the state of the oceans in recent years.

The ocean is broken Newcastle Herald (Australia), Greg Ray (18/10/13)
Our Planet Is Exploding With Ocean Dead Zones Business Insider, Dina Spector (26/6/13)
Health of oceans ‘declining fast’ BBC News, Roger Harrabin (3/10/13)
Chaos in the Oceans Huffington Post, Evaggelos Vallianatos (14/10/13)
Ocean Health Suffers from Overfishing, Index Finds Live Science, TechMedia, Douglas Main (16/10/13)

Dead zone (ecology) Wikipedia
Common Fisheries Policy Wikipedia
Reform of the Common Fisheries Policy Fisheries DG, European Commission
Ocean Health Index OHI


  1. How does a common resource differ from a public good?
  2. What is the equilibrium use of a common resource? Demonstrate this with a diagram.
  3. What is the socially efficient use of a common resource such as a fishing ground?
  4. In what ways have modern ‘industrial’ methods of fishing compounded the problem of the overuse of fishing grounds?
  5. What criteria, other than social efficiency, could be used to determine the optimal use of a common resource?
  6. Explain how the Common Fisheries Policy of the EU works. Are there any lessons that can be learned by other groups of countries from the experience of the CFP?
  7. Are there any ‘good news’ stories about the state of any of the oceans? If so, to what extent are they the result of deliberate human action?
  8. To what extent is the Internet a common resource?
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CAPping agricultural support in the EU

The European Parliament, Council and Commission have agreed on reform to the Common Agricultural Policy as part of the EU’s long-term budget settlement for 2014–20. The CAP accounts for some 38% of the EU’s budget and, over the years, has drawn considerable criticism for resulting in food mountains and support being biased towards large intensive farms.

As section 3.5 in Economics (8th ed) explains, the CAP has been through a number of reforms since the early 1990s. Prior to that, the main form of support was that of guaranteed minimum prices backed up, where necessary, by levies (tariffs) on imported food. Any surplus of production at the minimum price was bought by the relevant EU Intervention Board and either stored or exported at world prices. The effect of minimum prices is shown in the diagram.

Assume that the EU demand is DEU and that EU supply is SEU. Assume also that the world price is Pw. This will be the equilibrium price, since any shortage at Pw (i.e. ba) will be imported at that price. Thus before intervention, EU demand is Qd1 and EU supply is Qs1 and imports are Qd1Qs1.

Now assume that the EU sets an intervention price of Pi. At this high price, there will be a surplus of de (i.e. Qs2Qd2). Assume for the moment that none of this surplus is exported. It will all, therefore, be bought by the appropriate Intervention Board. The cost to the EU of buying this surplus is shown by the total shaded area (edQs2Qd2: i.e. the surplus multiplied by the intervention price). Unless the food is thrown away, exported or otherwise disposed of, there will obviously then be the additional costs of storing this food: costs that were very high in some years as wine ‘lakes’ and grain and dairy ‘mountains’ built up. If, however, the surplus is sold on world markets at the world price Pw, this will earn the green area for the EU, leaving a net cost of just the pink area.

From 1992, there was a gradual move towards lowering intervention prices and paying farmers direct aid unrelated to current output. From 2004, the main form of support became these direct aid payments. Annual payments to each farm were based on the average support it had received over the three years from 2000 to 2002. At the same time, payments to large farms were gradually reduced, with 80 per cent of the money saved in each country being diverted to rural development. Payments were also made conditional on farmers making environmental improvements to their land.

A problem with this system is that farmers who had high average output in the years 2000–2 have been receiving the same large payments ever since, while farmers who had small yields in those years have received correspondingly small payments.

A proposal two years ago by Dacian Cioloş, the EU Commissioner for Agriculture, was for flat-rate payments per hectare. But objections were raised that this would benefit inefficient farmers who would receive the same as efficient ones. In the end a compromise agreement was reached which saw a capping of the amount of payment per hectare. The result is that the most intensive farmers will see a reduction in their payments by some 30% – a process that will happen gradually over the period 2014–19.

In addition it has been agreed that 30% of the direct aid payments will be conditional on farmers adopting various measures to protect the environment and wildlife.

Farmers will have to be ‘active’ producers to receive direct aid payments. This is designed to exclude businesses such as airports or sports clubs, some of which had been receiving support under the previous system.

It was also agreed to provide 25% extra support for five years to farmers under 35 in an attempt to attract more young farmers into agriculture. Other details of the settlement are given in the EU documents, videos and articles below.

The great shake-up of the Common Agricultural Policy EPP Group in the European Parliament (25/1/13)
Planned reforms of Common Agricultural Policy under fire BBC News, Roger Harrabin (24/6/13)
Mixed response to compromise CAP deal RTE News (26/6/13)
Farm reforms may not increase food production, warns MEP europeandyou, Diane Dodds MEP (26/6/13)

Big farms to see European subsidies slashed The Telegraph, Rowena Mason (26/6/13)
Common Agricultural Policy deal agreed at last RTE News, Damien O’Reilly (26/6/13)
CAP Reform: MEPs, Council and Commission strike deal FarmingUK (27/6/13)
EU agricultural overhaul puts onus on farmers to be green Financial Times, Joshua Chaffin (26/6/13)
CAP reform deal agreed in Brussels Farmers Guardian, Alistair Driver (26/6/13)
‘Bad for farmers and wildlife’ – CAP reform reaction Farmers Guardian, Alistair Driver (27/6/13)

EU dcouments
Political agreement on new direction for common agricultural policy Europa Press Release (26/6/13)
CAP Reform – an explanation of the main elements Europa Press Release (26/6/13)
Press release, 3249th Council meeting : Agriculture and Fisheries The Council of the European Union (25/6/13)


  1. Why will a system of agricultural support based solely on direct aid not result in any food mountains?
  2. Show in a diagram the effect of high minimum prices (plus import levies) on an agricultural product in which a country is not self-sufficient (and is still not made so by the high minimum price). How much will be imported before and after the intervention?
  3. What are the arguments for and against making direct aid payments based solely per hectare?
  4. Find out how sugar quotas have worked. What will be the effects of abolishing them by 2017?
  5. What ‘green’ measures are included in the agreement and how effective are they likely to be?
  6. Consider the arguments for and against removing all forms of support for agriculture in the EU.
  7. What are the effects of (a) price support and (b) direct aid payments unrelated to output for EU farmers on farmers in developing countries producing agricultural products in competition with those produced in the EU?
  8. Why may the environmental measures in the new agreement be seen as too weak?
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A shock for energy provision

EU environmental legislation is beginning to cause problems in the UK. As it prohibits coal-fired power plants from generating power, they will be forced to close. This means that the UK will be forced to rely more on imported energy, which could lead to price rises, as energy shortages emerge.

Ofgem, the energy regulator has said that the risk of a gas shortage is likely to be at its highest in about 3 years time, as the amount of spare capacity is expected to fall from its current 14% to just 4%. Energy shortages have been a concern for some time, but the report from Ofgem indicates that the predicted time frame for these energy shortages will now be sooner than expected. Ofgem has said that the probability of a black-out has increased from 1 in 3,300 years now to 1 in 12 years by 2015.

The government, however, has said that its Energy Bill soon to be published will set out plans that will secure power supply for the UK. Part of this will be through investment, leading to new methods of generating energy. The Chief Executive of Ofgem, Alistair Buchanan said:

‘The unprecedented challenges in facing Britain’s energy industry … to attract the investment to deliver secure, sustainable and affordable energy supplies for consumers, still remain.’

One particular area that will see growth is wind-farms: a controversial method of power supply, due to the eye-sore they present (to some eyes, at least) and the noise pollution they generate. But with spare capacity predicted to fall to 4%, they will be a much needed investment.

Perhaps of more concern for the everyday household will be the impact on energy prices. As we know, when anything is scarce, the price begins to rise. As energy shortages become more of a concern, the market mechanism will begin to push up prices. With other bills already at record highs and incomes remaining low, the average household is likely to feel the squeeze. The following articles and the Ofgem report considers this issue.

Electricity Capacity Assessment Ofgem Report to Government, Ofgem (5/12/12)

Power shortage risks by 2015, Ofgem warns BBC News (5/10/12)
Britain faces risk of blackout The Telegraph (5/10/12)
Ofgem estimates tightening margins for electricity generation Reuters (5/10/12)
Electricity shortages are ‘risk’ by 2015 Sky News (5/10/12)
Future energy bills could give customers a nasty shock ITV News, Chris Choi (5/10/12)


  1. What is the role of Ofgem in the UK?
  2. Explain the way in which prices adjust as resources become more or less scarce. Use a demand and supply diagram to illustrate your answer.
  3. To what extent do you think the UK should be forced to close down its coal-fired plants, as a part of EU environmental legislation?
  4. Are there any market failures associated with the use of wind farms? Where possible, use a diagram to illustrate your answer.
  5. Explain why an energy shortage will lead to an increase in imports and how this in turn will affect energy prices.
  6. What are the government’s plans to secure energy provision in the UK? Do you think they are likely to be effective?
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Plastic peril

A campaign to introduce a tax on disposable plastic bags in England has been launched by various pressure groups, including The Campaign to Protect Rural England (CPRE), Keep Britain Tidy, the Marine Conservation Society and Surfers Against Sewage. Plastic bags, they maintain, litter streets and the countryside and pollute the seas, where they cause considerable damage to marine life.

They propose a tax of 5p per bag, which would be passed on to consumers. Such a levy has already been introduced in Wales in October 2011. As a result, plastic bag use in Wales has dropped dramatically (see also the full report from the Welsh Government). The Scottish Government and the Northern Ireland Assembly are also planning introducing similar charges.

Many other governments have introduced taxes, charges or bans on plastic bags and many more are considering introducing such measures. Ireland introduced a 15 euro cent charge on single-use plastic bags as far back as 2002 and saw a 94% reduction in plastic bag use (328 per person per year to 21). The charge was raised to 22 euro cents in 2007 after bag use rose to 30 per person.

Other countries have banned plastic bags altogether: some, such as Rwanda and Somalia have banned all plastic bags; others, such as China and South Africa have banned very thin bags; others, such as Italy, have banned non-biodegradable ones.

In the USA, various states or districts have introduced levies and in the EU, where more than four billion bags are thrown away each year, the European Commission will soon publish proposals for limiting the use of plastic bags.

So what are the arguments for limiting the use of plastic bags? Why is it not enough to leave things simply to the market? And if the use of plastic bags is to be reduced, what’s the most efficient way of doing so? Are there any problems with alternatives to plastic bags? The following articles and reports consider these questions?

England urged to pick up Wales’ plastic bag levy businessGreen, Jessica Shankleman (1/8/12)
Wales’ plastic bag charge yields massive green savings businessGreen, Jessica Shankleman (5/7/12)
Supermarkets ‘should charge £1 a bag’ BBC Today Programme, Samantha Harding and Judith Holder (2/8/12)
Environmentalists team up to push for bag tax in England Plastics News, Anthony Clark (1/8/12)
Break the Bag Habit Keep Britain Tidy (1/8/12)
Plastic bag use ‘up for second year running’ Guardian, Rebecca Smithers (5/7/12)
Plastic bag use in Wales plummets due to 5p charge, figures show Guardian, Adam Vaughan (4/7/12)
Carrier bag charge ‘effective and popular’ figures reveal ITV News (4/7/12)
What should be done about plastic bags? BBC News Magazine, Chris Summers (19/3/12)
Irish bag tax hailed success BBC News, Chris Summers (20/8/02)
The Big Fix The Math Behind Sacking Disposable Bags Atlantic Cities, Nate Berg (26/9/11)
Fremantle moves to ban plastic bags ABC News, Lucy Martin (23/7/12)
Bans Plastic Bag Ban Report, Ted Duboise (updated)
Vote With Your Dollars, and Also Vote New York Times, Gernot Wagner (30/7/12)

Evaluation Of The Introduction Of The Single-Use Carrier Bag Charge In Wales: Attitude Change And Behavioural Spillover, Wouter Poortinga, Lorraine Whitmarsh and Christine Suffolk Report to Welsh Government by Cardiff University (June 2012)
Life cycle assessment of supermarket carrierbags: a review of the bags available in 2006 Environment Agency, Joanna Marchant (25/7/11)
Stakeholder consultation on options to reduce the use of plastic carrier bags … EC Environment (19/3/12)


  1. Draw a diagram demonstrating the externalities involved in the use of plastic bags. Show the marginal private and social costs and benefits and the socially efficient level of consumption.
  2. How would you set about establishing the amount of consumer surplus from the use of plastic bags at a zero price?
  3. Compare the relative social efficiency of a tax on plastic bags with a ban on plastic bags.
  4. Would education be an effective alternative to taxing plastic bags?
  5. Why might it be difficult to get supermarkets and other retailers to agree to a voluntary ban on giving out free plastic bags?
  6. Why might it be extremely difficult in practice to establish the socially efficient price for plastic bags?
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The road ahead

The Office for Budget Responsibility has said that the UK Treasury will face a shortfall of £13bn in motoring taxes within a decade. Although car usage continues to rise putting increasing pressure on the road infrastructure, the greener and more fuel efficient cars being produced are driving down the tax revenues generated from motoring.

A report by the IFS has put forward the case for replacing the existing system of taxes on cars and fuel by a new road charging system. If no such change occurs, the IFS has forecast that with more electric cars and hence lower revenues raised from fuel and vehicle excise duties, the shortfall facing the Treasury would require an increase in fuel duty of some 50%. Instead of this, the solution could be to charge individuals for every mile of road they use, with the ‘price’ varying depending on the degree of congestion. For example, at peak times the price would be higher, where as for those in the countryside where roads are traditionally much quieter, charges would be lower. The IFS said:

‘Such a move would generate substantial economic efficiency gains from reduced congestion, reduce the tax levied on the majority of miles driven, leave many (particularly rural) motorists better off, and provide a stable long-term footing for motoring taxes without necessarily raising net additional revenue from drivers.’

Government policy across the world has been increasingly focused on climate change, with targets for emissions reductions being somewhat ambitious. However, many car manufactures who were told to reduce emissions significantly are on the way to meeting these targets and this success is a key factor contributing towards this new road ‘crisis’ that could soon be facing the government. The following articles consider the possibility of a road charging scheme.

The road ahead for motoring taxes? Institute of Fiscal Studies (link to full report at the bottom of the page) (May 2012)

Compelling case for UK road charging, IFS study says BBC News (15/5/12)
Fears tax shortfall may lead to road tolls Sky News (15/5/12)
Who’s going to pay to update Britain’s infrastructure? Guardian Business Blog (15/5/12)
Motoring taxes: a future headache for the Chancellor Channel 4 News (15/5/12)
For whom the toll bills – less traffic hurts M6 toll road owner Guardian, Ian Griffiths and Dan Milmo (14/5/12)
Charge motorists per mile, says IFS Independent, Nigel Morris (15/5/12)
Green cars to drive down tax receipts Financial Times, Mark Odell and John Reed (15/5/12)


  1. Illustrate the effect of a tax being imposed on petrol. What happens to the equilibrium price and quantity?
  2. Despite fuel duty pushing up the price of petrol, why has there been such a small decline in the quantity of petrol individuals use?
  3. Evaluate the case for and against a road charging scheme.
  4. Why are tax revenues from motoring expected to decline over the next decade?
  5. Climate change has become an increasingly important focus of government policy. To what extent is the current road ‘crisis’ a positive sign that policies to tackle climate change are working?
  6. If a road charging scheme went ahead and prices were varied depending on traffic, time etc, what name would you give to this strategy?
  7. Why would it be possible to charge a higher price at peak times and a lower price for cars using country roads?
  8. Is there an argument for privatising the road network? Is it even possible?
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Ore struck in Goa

My son Andrew Sloman (see also) is currently in Goa. My wife Alison and I went to visit him over half term – our first trip to India. Goa is a beautiful state, with wonderful beaches, fantastic food and perfect weather in February. But inland from this tourist haven lies an environmental disaster caused by the open-cast extraction of iron ore.

This tiny state by Indian standards produces more than 60% of India’s iron ore exports. Whilst, along with tourism, the iron ore industry has been one of the largest contributors to the Goan economy, its environmental footprint is massive. Deforestation and water and air pollution are just three of the environmental externalities.

So should a cap be placed on the amount of iron ore that is mined? Should the industry be taxed more heavily? Should tough environmental standards be imposed on the industry? Or should it simply be allowed to continue, given its large contribution to the Goan economy? Or, at the other extreme, should the industry be closed? The linked article looks at some of the issues. Try to identify, as an economist, what information you would require in order to come to a conclusion to these questions.

Greens’ shout for cap on iron ore mining falls on deaf ears Times of India, Paul Fernandes (28/2/12)


  1. What negative externalities are involved with the Goan iron ore industry? Are there any positive externalities?
  2. What difficulties are there in measuring the negative externalities?
  3. How would you set about doing a cost–benefit analysis of (a) expanding the Goan iron ore industry; (b) shutting it?
  4. Explain the following: “The net present value of the opportunity cost for 25 years at 12% social discount rate of giving it up is greater than its environmental cost by Rs 14,449 crore, the report states.” (A crore is 10 million and Rs is the symbol for an Indian Rupee, where £1 = approximately 78 rupees.)
  5. What difficulties are there in attempting to take distribution into account when doing a cost–benefit analysis?
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