At the end of two weeks of often acrimonious wrangling between representatives from 193 countries, an agreement – of sorts – was reached at the climate change summit in Copenhagen. What was this agreement? It was an ‘accord’ brokered by the USA, China, India, Brazil and South Africa.
This Copenhagen Accord contains three elements. The first is a recognition of the need to prevent global temperatures rising by more than 2 degrees Celsius above pre-industrial levels. The second is a commitment by developed countries to give $30bn of aid between 2010 and 2012 to developing countries for investment in green technology and to mitigate the effects of climate change. In addition, a goal was set of providing $100bn a year by 2020. The third is for rich countries to give pledges on emissions reductions and for developing countries to give pledges on reducing emissions increases. Developed countries’ pledges will be scrutinised by the UN Framework Convention on Climate Change, while developing countries will merely be required to submit reports on their progress in meeting their pledges.
But this is only an accord. It has no legal status and was merely ‘recognised’ by the countries at the conference. What is more, the target of limiting temperature rises to 2C does not contain a date by which temperature rises should peak. Also, as countries are not required to submit targets for emissions until February 2010, it is not clear how these targets will be kept low enough to meet the temperature target and there is no identification of penalites that would apply to countries not meeting their pledges.
Not surprisingly, reactions around the world have been mixed. The following podcasts and articles look at these reactions and at the economic mechanisms that will be required to meet the 2C limit
Podcasts and videos
Recriminations after Copenhagen summit (video) BBC News, David Loyn (21/12/09)
Copenhagen special: Climate change talks end in failure Guardian podcast (19/12/09)
Where do we go after Copenhagen? BBC Today Programme (21/12/09)
Articles
What was agreed and left unfinished in U.N. climate deal Reuters of India Factbox (20/12/09)
Copenhagen deal: Key points BBC News (19/12/09)
Copenhagen deal reaction in quotes BBC News (19/12/09)
Copenhagen climate summit fails green investors BBC News, Damian Kahya (22/12/09)
Why did Copenhagen fail to deliver a climate deal? BBC News (22/12/09)
Copenhagen climate accord: Key issues BBC News (19/12/09)
Harrabin’s Notes: After Copenhagen BBC News, Roger Harrabin (19/12/09)
Copenhagen climate conference: Who is going to save the planet now? Telegraph, Louise Gray (21/12/09)
Copenhagen’s One Real Accomplishment: Getting Some Money Flowing New York Times, James Kanter (20/12/09)
Copenhagen climate summit: plan for EU to police countries’ emissions (including video) Telegraph, James Kirkup, and Louise Gray (19/12/09)
The road from Copenhagen Guardian, Ed Miliband (UK Secretary of State for Energy and Climate Change) (20/12/09)
Carbon Prices Tumble After ‘Modest’ Climate Deal Bloomberg, Mathew Carr and Ewa Krukowska (21/12/09)
Copenhagen deal causes EU carbon price fall BBC News (21/12/09)
Have the hopes of environmentalists been dashed? Financial Times, Clive Cookson (21/12/09)
EU reflects on climate ‘disaster’ Financial Times, Joshua Chaffinin (22/12/09)
China not to blame on climate China Daily, Zhang Jin (23/12/09)
Selling a low-carbon life just got harder Times Online, Jonathon Porritt (21/12/09)
Better than nothing The Economist (19/12/09)
Copenhagen has given us the chance to face climate change with honesty Observer, James Hansen (27/12/09)
Questions
- What incentives exist for countries to agree to tough pledges to reduce emissions?
- Was the very limited nature of the Copenhagen Accord a Nash equilibrium? Explain.
- Is the carbon price a good indicator of the effectiveness of measures to curb emissions?
- Must any agreement have verifiable targets for each country of the world if it is to be successful in curbing carbon emissions?
- Is a cap-and-trade system the best means of achieving emissions reductions? Explain.
As the Times Online article below states, “Barely a year ago, The Co-operative Group was selling itself as an antidote to big business, an ethical alternative to the ruthlessness of mammon, but now it has decided to take on the Big Four supermarkets at their own game.”
So just what is the business strategy of the Co-op? Is ethical business consistent with profit maximisation? Does the takeover of Somerfield make the new Co-op a very different type of supermarket from that of a few months ago? The following articles look at the Co-op’s business strategy.
Co-op hits back with its own triple whammy Times Online, Marcus Leroux (30/11/09)
Christmas battle has started but the real test will be 2010 Telegraph, James Hall (5/12/09)
Co-op supermarket chain enjoys Somerfield boost BBC News, Will Smale (11/12/09)
See also the Co-operative group site:
The Co-operative
Questions
- What do you understand by ‘ethical business’? Would you describe the Co-op as an ethical business?
- What type of merger is the one between the Co-op and Somerfield?
- What economies of scale are likely be realised by Co-op’s takeover of Somerfield?
- What type of growth strategy is the Co-operative group pursuing?
- Is being ethical likely to slow or accelerate the expansion of the Co-op?
In a recently published book, Scroogenomics, Joel Waldfogel, Professor of Business and Public Policy at the University of Pennsylvania, examines the economics of giving presents and considers whether we would be better off being Scrooges. This book brings to a general audience some of Professor Waldfogel’s work on giving. In a 1993 paper, he argued that holiday gift-giving involves a deadweight welfare loss. “I find that holiday gift-giving destroys between 10 per cent and a third of the value of gifts.” (See The Deadweight Welfare Loss of Christmas. Note: you should be able to access this from a UK university site if you are logged on.)
The core of his argument is that many gifts we give are not really what the person receiving it would have chosen. If you give someone a gift costing £10 for which the person would not have paid more than £6, then that is £4 wasted – a deadweight loss of £4.
So should we all be Scrooges and stop giving? Think of all money that would be saved and which could be spent on things that were more wanted. But wait a minute. What about the pleasure (i.e. utility) of giving? And what about the pure pleasure of receiving a gift, irrespective of the gift itself? Should these be added in to arrive at the total utility? Then there is the pleasure (or hassle) of shopping for the gift. Shouldn’t this be taken into account too? In other words, to establish deadweight loss, we need to take into account all the pleasures and displeasures of the process of giving and receiving.
Finally there is the question of whether better research on the part of the giver into the tastes of the receiver would enable them to choose more wanted gifts. Or should we simply give cash or gift tokens: at least these can be used by the recipient for whatever they choose?
Interview with Joel Waldfogel Princeton University Press, on YouTube
See also the following articles:
It’s not just Scrooge who wants Christmas abolished Financial Times, Tim Harford (20/11/09)
Stop blaming Grandma for cruddy Christmas presents Seattle Times, Joel Waldfogel (20/11/09)
It may not be the thought that counts Washington Post (22/11/09)
Economics of gift vouchers BBC News Magazine, Ruth Alexander (17/12/07)
The high cost of ugly, useless Christmas gifts Globe and Mail (Canada), Erin Anderssen (13/11/09)
Author’s argument that unappreciated gifts drag down economy isn’t Scroogish, it’s foolish Mlive.com, Nancy Crawley (8/11/09)
Give gold, not myrrh The Economist (21/12/09)
Questions
- What factors would need to be taken into account in attempting to measure the true deadweight loss of giving? Would this involve inter-personal comparisons of utility and, if so, what problems might arise from this?
- Examine whether it is better to give cash or gift tokens rather than a physical gift?
- Consider whether charitable donations would be the best form of gift to a friend or relative?
- One practice used in many families is the ‘secret Santa’. This is where everyone in the family secretly draws the name of another family member at random. They then buy a gift for this person and put the gift under the tree (or in a box). Thus each person gives just one gift and receives one gift and nobody knows who has given them their gift. Normally a maximum value of the gift is determined in advance. Consider the advantages and disadvantages of such as system. Is it a more efficient way of giving?
- What are the macroeconomic arguments for giving presents at Christmas time or at other festivals?
No-one in the UK can have failed to notice the seemingly never-ending torrent of wind and rain that has swept the country over the past couple of weeks. At the moment, there are 19 flood warnings in the UK and a further 58 areas are on flood watch, according to the Environmental Agency. Cockermouth in Cumbria has been the worse hit, with 12.4 inches of rain falling in just 24 hours, 6 bridges collapsing and over 200 people being rescued by emergency services, some having to break through their roof to get out. Thousands of people have been evacuated; PC Bill Barker lost his life trying to save others; and fears remain for a 21-year old women, who was washed away from a bridge. This has led to a safety review of all 1800 bridges in Cumbria.
Thousands of people have lost their homes and belongings and over 1000 claims to insurance companies have already been made. Flood victims are facing rapidly rising costs, as insurance premiums increase to cover the costs of flooding and this has led to these houses becoming increasingly difficult to sell. Some home-owners are even being forced to pay mandatory flood insurance. Without this in place, insurance companies are not willing to insure homeowners in some areas, or the premiums they’re charging are simply unaffordable. After all, if one household in an area hit by flooding claims for flood damage, the probability of all other houses in that area also claiming is pretty high, if not an almost certainty.
Care packages are arriving for those hit by the floods, as food is starting to run out, and estimates of the costs of flooding have already reached ‘tens of millions of pounds’. Gordon Brown has pledged £1 million to help the affected areas, but who knows where this money will come from; Barclays has also pledged help for the small businesses affected.
An independent inquiry needs to be launched into the causes of this flooding and whether better flood protection should have been in place. However, the extent of the flooding experienced is argued to only happen every 300 years, so is the cost of flood protection really worth the benefits it will bring? A number of issues have arisen from this freak weather, and some are considered in the articles below.
Residents returning to Cockermouth after flooding (including video) BBC News (23/11/09)
Insurers will be hit by £100 million flood bill City AM, Lora Coventry (23/11/09)
£100 million bill after Cumbria floods nightmare Metro, Kirststeen Patterson (23/11/09)
Floods claim in Cumbria could and Scotland could top £100 million (including video) BBC news (22/11/09)
Riverside residents, others may be forced to buy mandatory flood insurance The Times, Illinois, Steve Stout (21/11/09)
Funds for flooding victims set up BBC News (22/11/09)
Flood victims suffer as insurance costs rise Guardian, Jamie Elliott (8/11/09)
1 in 6 house insurance customers at risk of flooding UIA (20/11/09)
Papers focus on flood shortages BBC News (23/11/09)
Questions
- Why are insurance premiums high for flood protection and how will this affect house sales in the affected areas?
- Are the risks of flooding independent?
- Apart from those living in the areas hit by floods, who else will suffer from the flooding and how?
- The flooding experienced is said to be a phenomenon experienced every 300 years. Should better flood defences be put into place to stop the same thing happening in the future or should we use the necessary money elsewhere?
- What are the private and external costs and benefits of increased flood defences? What would a cost–benefit analysis need to establish in order for a decision to be made over whether more defences should be put in place?
- Millions of pounds will be needed to repair the damage caused by the flooding. Where will this money come from? Think about the opportunity cost.
- What do you think will be the likely impact on environmental policy and how will this affect you?
The National Institute for Health and Clinical Excellence (NICE) is the independent agency in the UK charged, amongst other things, with assessing the cost-effectiveness of new drugs. In a report published on 19 November 2009, NICE found that the drug sorafenib, branded as Nexavar by its manufacturer, the German pharmaceutical company, Bayer AG, was not cost-effective. The drug can extend the life of terminally ill patients with liver cancer. However, it is very expensive, costing about £3000 per month per patient.
The NICE press release (see link below) quotes Andrew Dillon, the Chief Executive of NICE, as saying: “We were disappointed not to have been able to recommend the use of sorafenib, but after carefully considering all the evidence, including the proposed ‘patient access scheme’ in which the manufacturer offered to provide every fourth pack free, sorafenib does not provide enough benefit to patients to justify its high cost.”
Not surprisingly people suffering from liver cancer, and also various patient groups, were highly critical of the decision. But with a limited budget for the National Health Service and the increasing pressure to save costs in order to reduce the public-sector debt, many difficult choices like this have to be made.
What NICE attempts to do is a cost–benefit analysis of new drugs. Whilst costs can be difficult to measure, especially over the longer term, the benefits are much more problematic as they have to take into account the effects on the quality of people’s lives – something that will vary enormously from one patient to another. And then there are the effects on family and friends and on the economy. The measure used in the NHS and elswhere is the QALY – ‘quality-adjusted life year’. In paragraph 4.8 of the full NICE report (see link below), it was noted that
“the base-case ICER [incremental cost-effectiveness ratio] presented by the manufacturer was originally £64,800 per QALY gained and when the patient access scheme was included [where every fourth pack is supplied free to the NHS by Bayer] this went down to £51,900 per QALY gained. Both ICERs were substantially higher than those normally considered to be an acceptable use of NHS resources.”
2009/069 NICE appraisal of sorafenib for advanced hepatocellular carcinoma NICE press release (19/11/09)
Final appraisal determination Sorafenib for the treatment of advanced hepatocellular carcinoma (Full document) NICE (19/11/09)
NHS denies drug to cancer patients (video) ITN (on YouTube) (18/11/09)
Liver cancer drug ‘too expensive’ (including videos) BBC News (19/11/09)
UK’s NICE says Bayer liver cancer drug too costly Reuters (18/11/09)
Nice’s decision not to approve the liver cancer drug Nexavar is painful but necessary and Drug for terminal liver cancer patients ‘too expensive’Telegraph, Rebecca Smith (19/11/09)
NHS says it’s too expensive to keep you alive Telegraph, Janet Daley (19/11/09)
Bayer’s patent case hearing in HC today Tines of India (18/11/09)
Questions
- What makes the choice of whether to provide a particular drug to a pateint an ‘economic’ one?
- Imagine you were a person suffering from liver cancer. What evidence would you wish to bring to the government to persuade it to ignore NICE’s recommendation?
- Is the use of QALYs the best means of assessing the benefits of a drug? Explain.
- What are the arguments for and againist the NHS providing expensive drugs free to people on low incomes but charging a price well above the current prescription fee to those who could afford to pay? If such as scheme were introduced, on what basis should such a price be determined and should it be on a sliding scale according to people’s income and/or wealth?