In the run-up to the United Nations climate Change conference in Copenhagen from 7 to 18 December, many countries have been setting out their preliminary positions. The conference aims to set the terms for the agreement that will succeed the Kyoto Protocol in 2012.
Senior scientists, economists and politicians have been warning about the dire necessity of reaching a comprehensive agreement. One such economist is Sir Nicholas Stern. He argues that the EU should impose a unilateral cut in greenhouse gas emissions of 30% from 1990 levels by 2020, irrespective of the any agreement in Copenhagen. The EU has pledged to increase its targeted cut from 20% to 30% only if substantive progress is made at the talks.
Other countries have set out their preliminary positions. China has offered to reduce its carbon intensity by 40% (i.e. the proportion of carbon emissions to GDP); the USA has offered to reduce emissions by 17% by 2020 compared with 2005 levels; and India has offered to reduce its carbon intensity by 24% over the same period.
However, as the Washington Post article below states, “During a weekend meeting, India, along with China, Brazil, South Africa and Sudan, decided it would not agree to legally binding emission cuts, international verification of reductions without foreign funding and technology, and imposition of trade barriers in the name of climate change.”
Meanwhile the news from Australia has come as a blow to those seeking to extend tradable permit schemes around the world. The Australian senate has rejected a bill to set up an Emissions Trading Scheme (ETS), designed to cut Australia’s carbon emissions by up to 25% below 2000 levels by 2020.
Copenhagen climate talks: Main issues Independent (30/11/09)
Factfile on UNFCCC, Kyoto Protocol, Copenhagen talks Independent (30/11/09)
Copenhagen summit: Is there any real chance of averting the climate crisis? Observer, James Hansen (29/11/09)
A heated debate Economist (26/11/09)
Getting warmer Economist (3/12/09)
Is it worth it? Economist (3/12/09)
Good policy, and bad Economist (3/12/09)
The Carbon Economy Economist (3/12/09)
Copenhagen climate summit: 50/50 chance of stopping catastrophe, Lord Stern says Telegraph (1/12/09)
UK Economist: Climate Skeptics are Confused U.S.News, Meera Selva (1/12/09)
Growing Scientific Consensus on Climate Change Ahead of Copenhagen Conference Voice of America, Michael Bowman (1/12/09)
EU ‘should cut emissions by 30%’ BBC News, Roger Harrabin (1/12/09)
Stern says Copenhagen could still save world Environmental Data Interactive Exchange (1/12/09)
Moves by U.S., China induce India to do its bit on climate Washington Post, Rama Lakshmi (2/12/09)
Why do climate deniers hold sway in Australia? Guardian, Fred Pearce (1/12/09)
Australian Senate defeats carbon trading bill Guardian, Toni O’Loughlin (2/12/09)
Failed CPRS ‘may lead to better plan’ Sydney Morning Herald (2/12/09)
Australia carbon laws fail, election possible Reuters, Rob Taylor (2/12/09)
Australian Senate rejects Kevin Rudd’s climate plan BBC News (2/12/09)
The following is the official conference site:
United Nations Climate Change Conference Dec 7–Dec 18 2009
Questions
- Why cannot tackling global warming be left totally to the market?
- To what extent can the market provide part of the solution to global warming?
- How can a cap-and-trade system (i.e. tradable permits) be used to achieve (a) emissions reductions; (b) an efficient way of achieving such reductions?
- Why could the atmosphere be described as a ‘global commons’? Does it have either or both of the features of non-excludability and non-rivalry (which are both features of a public good)?
- To what extent are climate change talks a prisoner’s dilemma game? How may the Nash equilibrium of no deal, or an unenforceable deal, be avoided?
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?
In the second of the linked articles below, Andy Atkins, from Friends of the Earth, argues that the European Emissions Trading Scheme (ETS) has failed to make any substantial cuts is emissions and is creating the opportunity for carbon traders to become very rich in increasingly complex financial products based on carbon. “This risks the development of sub-prime carbon and financial crisis – with a double whammy this time of environmental catastrophe to match.” He thus argues for alternative methods of reducing carbon, such as green taxes, tough regulation and government investment in green technology
But is the ETS a failure? In the third article, Alexandra Galin, from the Carbon Markets & Investors Association, argues that the second phase of ETS (2008–12) is much more successful than the first (2005–7) and that substantial carbon reductions have been achieved. Her argument is that a carbon trading scheme’s success in cutting carbon emissions does not depend on the trading system, but on the tightness of the cap. In other words, in a ‘cap-and-trade’ system, it is the cap that reduces emissions; the trading simply achieves the reductions in the most efficient way.
Friends of the Earth attacks carbon trading (including video) Guardian, Ashley Seager (5/11/09)
Don’t let the reckless City trade carbon Guardian, Andy Atkins (5/11/09)
The European emissions trading scheme is now a success Guardian, Alexandra Galin (17/11/09)
Storm could follow calm in EU carbon market Reuters, Nina Chestney (11/11/09)
Carbon market clouded by uncertainty BBC News, Damian Kahya (11/11/09)
See also: Gathering momentum on tackling climate change? (May 2009 blog)
Details of the European Emissions Trading Scheme can be found at:
Emission Trading System (EU ETS) European Commission, Environment DG
Questions
- Explain how the European Emissions Trading Scheme works.
- What are the advantages and disadvantages of the ETS as a means of reducing carbon emissions?
- Compare theses advantages and disadvantages with those of green taxes.
- How does the market price of carbon traded within the scheme reflect the toughness of the policy? What else might the price reflect?
- What is likely to happen to the carbon price in the coming months? Explain.
Whether or not you admit it, most people are aware of what’s happening in the X factor. With massive viewing figures, the X Factor remains one the most highly viewed entertainment programmes, so it’s hardly surprising that demand for advertising slots is so high especially when people are waiting for news about the contestants. The X Factor pulls in £8000 per second from TV adverts and it is estimated that the charge for a 30 second advertising slot is a staggering £190,000, expected to rise to £250,000 for the live final. It looks like the recession has had little impact on those wanting to sponsor the X Factor.
Nevertheless, there has been some controversy this week. Every Monday morning we see stories about the contestants and this week was no exception. But, it wasn’t so much about the contestants this week, but rather it concerned the voting. Following the episodes over the weekend of 7th and 8th November 2009, both the ITV and Ofcom, the telecommunications regulator, received thousands of complaints as Simon Cowell gave his support to ‘Jedward’ over Lucie Jones, even though in earlier episodes, he had said he would ‘leave the country if they won’.
However, Ofcom has said that the X Factor won’t be investigated, as the regulator only investigates voting irregularities and the treatment of contestants and not the outcome of the programme. Meanwhile, speculation is rife that Simon Cowell either wants to keep Jedward on the show, because of their viewer ratings, or that by voting Lucie off, the public will rebel and vote Jedward off this week and Simon will avoid looking like the bad guy.
Who knew that the world of entertainment could be analysed using economics!!
Ofcom won’t investigate X Factor ITN (11/11/09)
750 complain to Ofcom over Lucie’s X Factor exit Wales Online (12/11/09)
£8k a second bonanza for X Factor ads as ITV chiefs cash in on Jedward mania Mail Online (11/11/09)
Watchdog rules out X Factor probe BBC News (10/11/09)
Thousands complain to ITV and Ofcom over X Factor ATV Network News, Doug Lambert (10/11/09)
X Factor: Simon Cowell is an evil genius and we love him Telegraph, Liz Hunt (11/11/09)
Simon Cowell’s evil genius rules The X Factor Guardian, Marina Hyde (13/11/09)
Resistance is futile in the face of this master of psychology Independent, Matthew Norman (12/11/09)
Jedward: X Factor twins John and Edward help ITV rake in advertising Telegraph (11/11/09)
The X Factor becomes the ‘British Superbowl’ as advertising fees soar Tines Online, Dan Sabbagh (11/11/09)
The Ofcom site can be found at:
Ofcom (Home Page)
Questions
- What is the purpose of regulation? What are the advantages and disadvantages of legal restrictions?
- What is the role of Ofcom? How does it regulate telecommunications and what other regulators are there?
- Why is the price for an advertising slot during the X Factor so expensive? What does this tell us about price elasticity and income elasticity of demand?
- Ofcom is not going to investigate X Factor. What are the main reasons behind this decision? Do you think this was the right decision?
- If a judge’s decision can increase advertising revenue, then from a commercial point of view does that make it the ‘right’ decision?