A two-week international climate change summit opened in Cancún, Mexico, on 29 November. But will the talks make any progress in tackling global warming? Will mechanisms be put in place to ensure that the previously agreed ceiling of 2°C warming is met?
After the largely unsuccessfuly talks in Copenhagen a year ago, hopes are not high. But a likely rise in global temperatures of considerably more than 2°C could have disasterous global consequences. Indeed, new evidence suggests that even a ceiling of 2°C may be too high and that, as temperatures rise towards that level, domino effects will start that may become virtually unstoppable. As Andrew Sims in the Guardian article notes:
This is the problem. Once the planet warms to the point where environmental changes that further add to warming feed off each other, it becomes almost meaningless to specify just how much warmer the planet may get. You’ve toppled the first domino and it becomes virtually impossible to stop the following chain of events. Honestly, nobody really knows exactly where that will end, but they do know it will end very, very badly.
The following podcasts and articles look at the importance of reaching international agreement but the difficulties of doing so.
Podcasts and webcasts
Post-Copenhagen, a Cancun compromise? Reuters (30/11/10)
Climate change ‘Dragons’ Den’: What are the options? BBC News, Roger Harrabin (29/11/10)
Cancun climate change summit seeks new emissions deal BBC News, David Shukman (3/12/10)
Can nudge theory change our habits? BBC News, Claudia Hammond (29/11/10)
Articles
Cancún climate change conference 2010 Guardian, (portal)
Q&A: Cancún COP16 climate talks Guardian, Shiona Tregaskis (8/10/10)
72 months and counting … Guardian, Andrew Simms (1/12/10)
Cancún climate talks: In search of the holy grail of climate change policy Guardian, Michael Jacobs (29/11/10)
Cancún and the new economics of climate change Guardian, Kevin Gallagher and Frank Ackerman (30/11/10)
Facing the consequences The Economist (25/11/10)
UN climate talks low on expectation BBC News, Richard Black (29/11/10)
Expect little from Cancun talks The Star (Malaysia), Martin Khor (29/11/10)
Don’t let us down: UN climate change talks in Cancun Independent, Jonathan Owen and Matt Chorley (28/11/10)
Cancun and Climate: Government Won’t Act, But Business Will Time Magazine: The Curious Capitalist, Zachary Karabell (28/11/10)
At Global Climate Change Talks, an Answer Grows Right Outside Huffington Post, Luis Ubiñas (29/11/10)
Cancun climate change talks: ‘last chance’ in the snakepit The Telegraph, Geoffrey Lean (29/11/10)
Climate Change Talks Must Deliver After Record Weather Year Scoop (New Zealand), Oxfam (29/11/10)
World climate talks kick off in Cancun DW-World, Amanda Price and Axel Rowohlt (29/11/10)
On international equity weights and national decision making on climate change Vox, David Anthoff and Richard S J Tol (29/11/10)
Climate treaties all bluster, no bite The Age, Dan Cass (10/12/10)
Conference website
UNFCCC COP16/CMP6: Mexico 2010 Official site
Questions
- What would count as a ‘successful’ outcome of the climate change talks? Why might politicians interpret this differently from economists?
- What can governments do to internalise the externalities of greenhouse gas emissions?
- What insights can game theory provide into the difficulties of reaching binding climate change agreements?
- What are likely to be the most effective mechanisms for getting people to adapt their behaviour?
- Can nudge theory be used to change our habits towards the environment?
- Explain the use of equity weights in judging the effects of climate change. Are they a practical way forward in devising environmental policy?
There has been a 38% increase in profit margins made by energy companies in the last 2 months and it is this which has prompted an investigation by Ofgem, the electricity and gas market regulator in the UK. Alistair Buchanan, Ofgem’s chief executive, said:
“With Britain facing an investment bill of £20bn over the next 10 years, consumers have the right to expect that the energy retail market is providing them with value for money. Our analysis published today shows an increase in company margins from £65 to £90 at a time of rising energy prices, which causes Ofgem to rightly ask if companies are playing it straight with consumers.”
Three of the big six suppliers have recently announced price rises and the fast-track review by Ofgem will consider whether consumers should be better protected. Scottish Power has increased gas prices by 2% and electricity prices by nearly 9%, meaning some customers may pay an extra £138 per year. British Gas is also planning on raising prices from December 10th, with gas and electricity bills expected to increase by 7%. Scottish and Southern Energy said it will increase domestic gas tariffs by 9.4%. EDF has promised a price freeze – at least until after the winter and nPower and E.ON are yet to announce their plans, but we can expect some form of a price rise.
While the review won’t make any difference to customer bills in the short term, Ofgem does have the power to make some changes to the way the companies are run. It is also expected that Ofgem will ask for more legislative support from the government and the Competition Commission. Although there are several suppliers in the energy market, each has market power and their dominance is preventing new firms from entering. As Adam Scorer, Director of Reputation and Impact at Consumer Focus, said:
“They do not feel the hot breath of competition on their necks.”
Articles
Energy firms facing gas and electricity price review BBC News (26/11/10)
Energy firms face new Ofgem enquiry over price rises and increased profits Telegraph, Andrew Hough (26/11/10)
Ofgem promises review as energy firms boost profit margins 38% Guardian, Jill Treanor (26/11/10)
Fuel bills: turning up the heat Guardian (27/11/10)
Energy firms face profit rise probe The Press Association (26/11/10)
Scepticism greets energy price probe Financial Times, David Blair (26/11/10)
UK utilities face review after recent price hikes Reuters (26/11/10)
UK to review retail energy market after price rises Bloomberg, Business Week, Kari Lundgren (26/11/10)
Has the toothless energy regulator learnt how to bite? Independent on Sunday, Julian Knight (28/11/10)
How to beat the energy price rise Telegraph (20/11/10)
Ofgem must mean business this time Herald (27/11/10)
Ofgem Press Release
Ofgem to review the effectiveness of the retail energy market to see if further action is needed to protect consumers Ofgem (26/11/10)
Questions
- What type of market structure is the UK energy market?
- The BBC News article talks about barriers preventing new competitors from entering the market. What types of barriers exist in this sector?
- What is a profit margin?
- What is likely to be the impact on family income following such price rises? Illustrate this on a diagram.
- Britain faces a £200 billion bill to invest in updating the energy network. What sort of updates are being referred to?
- What power do regulators such as Ofgem actually have? Why won’t they be able to change the amount that consumers pay?
The owner-occupied housing market has seen widespread coverage. With house prices falling throughout the recession and problems accessing mortgages for many people, it is this sector of housing that has received most attention. However, it is rental homes that we’ll be considering here and a new strategy being adopted by landlords. As access to mortgages dried up, people instead turned to renting. Demand for rental properties began to increase, such that competition between potential tenants increased significantly. Not only has there been a substantial increase in rents – up by some 35%, but it has also led to a new ‘sealed bid’ strategy.
A strategy that is often used for purchasing houses is where potential buyers submit sealed bids and it is this approach which is now spreading to the rental sector, as demand and competition for properties increases. Potential tenants are required to submit a sealed bid, containing the amount that they are willing to pay to rent out the property and all this must be done within a deadline. Whoever submits the highest bid ‘wins’ the property and hence tenants are encouraged to submit a bid at or close to the maximum they are willing to pay. Landlords insist that they are not trying to force tenants to pay more, but that it is simply the most effective way of letting properties that are short in supply, but face significant demand. As the BBC News article states:
‘It seems that with the current state of the housing market, sealed bids will be here to stay – as long as many would-be renters are chasing a dwindling supply of good rental homes.’
Rental ‘gazumping on the up as demand rises Metro, Tariq Tahir (8/11/10)
’Bidding war’ for homes to rent BBC News, Nigel Cassidy (20/11/10)
Rental market’s now so hot tenants are having to make sealed bids Mail Online, Sebastien O Kelly (8/11/10)
Is the buy-to-let market on its way back? Seek4Media (20/11/10)
Gazumping on the rise as London rental soars Gulf Times, London Evening Standard (8/11/10)
Questions
- Using a supply and demand diagram, explain the trend we have seen in the rental market, thinking about the impact on demand, supply and hence on price. How does this explain why sealed bids have been used to combat the increased competition?
- Which factors have affected (a) the demand for rental properties and (b) the supply of rental properties? How is the elasticity of demand and supply relevant here in terms of the impact on price?
- To what extent is a sealed bid format fair on potential tenants? Who does such a strategy favour?
- How could this sealed bid strategy be an example of price discrimination?
- What is likely to happen to your consumer surplus if you have to submit a sealed bid?
Last week, I posted an article about a price discriminating tactic in operation by a few firms, whereby they were charging different prices to different consumers, depending on whether or not people could speak the language. (See Entrance this way!). Following this, I had a look around to find some other pricing strategies in practice by firms. These ranged from simple price discrimination to a well-known supermarket, which, following the failure of its till system, decided to trust consumers: estimate the value of the goods in your trolley/basket, deduct 20% and that’s the amount you pay. Also, a strategy being adopted by a number of restaurants – ‘pay what you think it’s worth!’ An advertising gimmick that increased sales.
So, what’s the best pricing strategy for a firm to adopt and which factors affect this? Is it really a rational decision to offer meals, with the possibility that the guests may only be prepared to pay 1p?!
You decide how much meals are worth, restaurants tell customers Telegraph, Nina Goswami (12/06/05)
Panera café says pay what you want Associated Press, Food Inc, Christopher Leonard (18/5/10)
Pound shop forced to close after 99p store opens across the road Daily Mail Online (12/1/09)
Low cost? Not with these extras Times Online, Richard Green (17/8/08)
Cheap hotels: budget accommodation for visits to London Telegraph (25/10/10)
Budget customers call the hotel Tune BBC News, Susannah Streeter (30/8/10)
Questions
- Is it a rational decision to trust consumers and ask them to estimate the value of what’s in their trolleys?
- Why would a restaurant offer consumers the chance to pay ‘what you think it’s worth’? Under what circumstances would this incrrease the firm’s revenue?
- What are the key factors that determine the price a firm will charge for its product?
- How can we use the case in Poole, with the new 99p shop, to analyse the model of perfect competition?
- What pricing tactic is being used by the 99p shop? How could we argue that this is an example of tacit collusion?
You might think that small environmentally-friendly companies would be moving into the green energy market: that setting up a wind farm, for example, would be a perfect business opportunity for a small company. In fact, the big companies are taking over this market. As the Der Spiegel article below states:
Europe’s wind energy sector is currently experiencing a major transformation. New massive offshore wind parks are soon expected to crop up off Europe’s coastline. Big companies like Siemens and General Electrics are increasing their stakes in a market worth billions. But experts warn that a new energy oligopoly may soon emerge.
So what is it about the wind energy market that makes it suitable for an oligopoly to develop? The two articles explore this question.
Winds of Change Der Spiegel, Nils-Viktor Sorge (1/11/10)
GE and Siemens Outpacing Wind Pioneers, Becoming Clean Energy’s “New Oligopoly” Fast Company, David Zax (2/11/10)
Questions
- What market failures are there in the wind energy market?
- What barriers to entry are there in the wind energy market?
- What economies of scale are there in this market?
- How are changes in this market affecting the minimum efficient scale of companies?
- Would there be room in the market for enough competitors to prevent collusion?
- How might the authorities prevent (a) open and (b) tacit collusion in the wind energy market?
- Do small wind energy companies have any market advantages?