Pre-Covid 19, the climate change movement had gathered momentum with climate activist Greta Thunberg regularly in the news and people around the world striking in protest of inadequate government action on the climate crisis. However, now in a world overtaken by the pandemic, climate change is no longer at the centre and appears a more distant threat. The majority of the large climate change events due to take place this year have been delayed and policy announcements are aimed at supporting the current economic hardships. This is not surprising nor debatable, but there is a risk that, as Covid-19 dominates the news, policy and debates for a long time to come, this will overshadow any environmental initiatives that were due to be implemented.
Governments around the globe are navigating their economies through the pandemic and starting to think about the future road to recovery. However, there is an argument that it doesn’t have to be a case of ‘either or’, as there is the potential for policies to address the Covid-19 crisis and climate change at the same time. How policy makers respond now could shape the fight against climate change for the future. One of the lessons from the pandemic is that quick responses to high impact risks are vital to reduce costs. With that in mind, and given the costs of climate change, it is arguable that now is the best time to address its challenges.
Climate change and Covid
It is estimated that there was a total global loss of $3tn caused by natural disasters over the past decade. By 2050, cumulative damages from climate change are predicted to reach $8 trillion, impoverishing the world as a whole by 3% of GDP and the poorest regions by more. Climate activists argue that despite the economic consequences of climate change, the action taken by governments has been insufficient. In 2015, the then Bank of England governor, Mark Carney warned: ‘Once climate change becomes a defining issue for financial stability, it may already be too late.’
However, since the pandemic struck all over the world, there have been positive consequences for the environment. Pollution levels started dropping fast as airlines grounded fleets, car travel came to a stop and industries shut down. With 2.6bn people living under restrictions under their country’s lockdown, there has also been an impact on the environment, not just the spread of the virus. Given that the lockdowns across the world have come at huge social and human costs, is now not the time to ensure that these improvements for the environment are not just temporary but ignite long-term changes?
Given the clear impacts and risks of Covid on peoples’ health, our ability to change our behaviour quickly has been striking. The importance of behaviour change has been brought to the centre and, arguably, it shows that we are capable of change when lives are at risk and are deemed more important than business-as-usual GDP growth. The application to climate change, however, is not as straightforward, as the costs to human lives are often viewed as a future problem.
Global cooperation
Dr Laure de Preux, Assistant Professor of Economics at Imperial College Business School, highlights the important role that cooperation across borders plays in the face of a global crisis like Coronavirus, and how that can be applied to the fight against climate change.
The big challenges the world is facing, including the climate change crisis, can only be dealt with efficiently through international cooperation. We cannot only act individually; the benefits of our actions are multiplied if integrated into a global strategy. In the case of COVID-19, social distancing measures can only be truly effective if they are adopted at a large scale.
World leaders are aware that their economies now face one of the most severe recessions in history as a consequence of the coronavirus restrictions. Governments are going to have to dedicate huge budgets to enable the economic activity to resume again. This presents a unique challenge, but also a massive opportunity for global cooperation. The question to be asked, therefore, is that if these stimulus packages are a one-off chance to transform the economy, how should the government spend it and what should be their focus? Should the recovery policies focus on creating a greener economy?
The European Union unveiled what it is calling the biggest ‘green’ stimulus package in history. Ursula von der Leyen, the European Commission president, told European Parliament members that this issue is about all nations and it is bigger than any one of them. The deputy Prime Minister of Spain, Teresa Ribera, states that there is a greater risk by not acting in this way. She argues that if the recovery is not green, then it will be nothing but a short-cut to solve the current problems rather than a true economic recovery.
It is not just in Europe where the recovery has an environment focus. Joe Biden is believed to be planning a similarly huge green stimulus package for the US. The model echoes the vast investment projects of the New Deal that helped lift America out of the Great Depression in the 1930s.
There are sound economic reasons why politicians see green technology as a prudent investment. Renewable energy is now often cheaper than fossil fuels in large parts of the world and the technologies are proven and can be built at scale today. The argument for renewables providing a pathway for clean future growth is based on the logic of much of manufacturing – the more you produce, the cheaper it gets. However, China does not appear to have similar plans for their recovery. China produces almost a third of the world’s emissions, as much as the USA and the EU combined. At the annual National People’s Congress, there was no indication that the big expansion of coal-fired electricity generation would be reversed, even though it is also expanding the production of renewable energy. China expanded its coal-fired power stations as a key part of its stimulus package after the 2008 financial crisis.
Policy decisions
The UK government receives ongoing pressure from energy companies. The boss of energy giant SSE, Alistair Phillips-Davies has warned that a failure to deal with climate change could eventually have a greater economic impact than coronavirus. SSE wants the UK government to encourage private investment in renewables by giving the green light to big new projects, such as hydrogen and carbon capture plants and boosting electric vehicles. Despite the impacts of climate change not being immediately felt in comparison to Covid-19, Phillips-Davies argues that a failure to deal with climate change could lead to great long-term impacts:
While it is still too early to predict with confidence the full human, social and economic impact of coronavirus, we can say with certainty that significant investment will be needed to rebuild the UK economy in its wake.
It is clear that any pandemic-induced financial decisions made over the next 12 months will shape the global economy for the next decade. The full impact of the virus on climate change will be determined by the world’s stimulus measures adopted post-pandemic. Following the 2008 financial crisis, the energy-intensive stimulus measures that followed, particularly in China, boosted emissions. Therefore, if we are to meet the reduction in emissions target our response needs to be green, helping to shape a sustainable future. Dr Alex Koberle, of the Grantham Institute at Imperial College London, argues that Governments should take time to reflect, learn from past mistakes and redirect development towards a sustainable future.
Shouldn’t growth be given priority?
With 1.6 billion people working in the informal economy worldwide reckoned to be in immediate danger of losing their livelihoods (according to the International Labour Organization), is now the right time to be focusing on the climate? Industries such as airlines and car manufacturing are strategic industries, employing millions of people. Headlines of longer-term environmental targets will be given less importance than headlines of job losses. Recovery relies on the government finding ways to employ lots and lots of people. There is a close relationship between real GDP, employment and energy consumption. Therefore, any policies aimed at reducing greenhouse gas emissions, unless carefully directed, could reduce economic growth and employment for both less and more developed economies. Such policies would increase the cost of conventional energy sharply.
Critics of a green energy policy for recovery argue that investing in renewable energy ignores the adverse effects of reduced investment and higher energy costs in other sectors. By governments prioritising policy to focus on the environment, they could harm the ability of most people to improve their own circumstances, especially given the terrible economic shock caused by the lockdowns.
Conclusion
With the majority of news in recent months providing little joy, there has been at least the positive impact on the environment. However, advocates say it not a cause for celebration and warn that any benefits are likely to be short lived. There have been some positive behavioural impacts but the true test will be what happens in the recovery phase. If the focus is returned to business as usual what happens to the targets actioned prior to Covid-19?
The immediate priority of all governments right now is to control the pandemic and to save lives. As their policy interventions have an impact and economies start to emerge from this crisis, then there is an important debate to be had about how new investments can help create a cleaner, greener recovery. We have learnt from the current pandemic that changes can be made when consequences are imminent, however, climate change is a threat that doesn’t go away, and is arguably just as urgent. Solutions to both crises can be integrated into a coherent response to propel the global economy towards sustainable growth and increased resilience.
Articles
Letter
Questions
- Are government attempts to reduce the impact of climate change beneficial or harmful to UK firms?
- What policy instruments can the government use to increase economic activity?
- How does an increase in investment affect aggregate demand?
- What are the costs and benefits of economic growth?
- Why can climate change be described as a market failure?
Like most other sectors of the economy, private schools have been significantly affected by the coronavirus pandemic. As with all schools, they have been restricted to providing their pupils with online instruction. In addition, some parents are likely to have seen their ability to pay the high fees private schools charge restricted. As a result of both of these factors, private schools have been forced to look into providing discounts or refunds on their fees. However, the UK competition authority have received evidence that these schools may have been communicating with each other over how they will set these fee reductions. The authority is concerned that this will allow the schools to restrict the discounts and keep their fees higher.
In other markets (see here and here) the competition authorities have been prepared to relax certain elements of competition law in light of the coronavirus situation. However, price fixing is the severest breach of competition law and the Competition and Markets Authority (CMA) has been clear that this continues to be the case in the current climate. A CMA spokesperson said:
Where cooperation amongst businesses or other organisations is necessary to protect consumers in the coronavirus outbreak, the CMA will not take enforcement action. But we will not tolerate organisations agreeing prices or exchanging commercially sensitive information on future pricing or business strategies with their competitors, where this is not necessary to meet the needs of the current situation.
Therefore, the CMA has written to the Independent Schools Council and other bodies representing the private school sector. This letter made clear that communicating over the fee reductions would be very likely to breach competition law and could result in fines being imposed.
This warning is important since the sector has a history of illegal communication between schools. In 2006 the Office of Fair Trading (OFT) (one of the predecessors to the CMA) imposed fines when it discovered that 50 of them, including Eton and Harrow, had for a number of years shared information on the fees they intended to charge. The OFT discovered that this had taken place following evidence obtained by a student who hacked into their school’s computer system. Here the student found information on the intended fees of competitor schools and leaked this information to the press. It is clear that the CMA will keep a close eye on private schools as they react to the ongoing pandemic.
Articles
Questions
- What are the key features of the private school sector? Is this a market where you would expect competition to be intense?
- Why is price fixing the severest breach of competition law?
- Assuming communication between the private schools is eradicated, how would you expect the sector to be affected by the coronavirus pandemic?
The issue of inequality has come into increasing focus over recent years. The impact of the COVID-19 pandemic raises further concerns that these inequalities may be exacerbated further. Here we provide an overview of some of the key patterns in current levels of wealth and income inequality in Britain. They show, for example, the markedly higher degree of inequality in wealth relative to income, the importance of property wealth and private pension wealth in determining levels of wealth, and the considerable variation in average wealth levels of households by age and location.
According to the 6th round of the Wealth and Assets Survey the aggregate wealth of British households was £14.63 trillion in April 2016 to March 2018. This compares with £12.57 trillion in the previous survey which ran from April 2014 to March 2016. This amounts to a 16.3 per cent nominal increase. In real terms, after adjusting for consumer price inflation, the increase was 13.1 per cent. Furthermore, when compared with the first round of the survey in July 2006 to June 2008, there has been a nominal increase in the aggregate wealth of British households of 74 per cent and a real increase of 41 per cent.
What is wealth?
An important question to ask when reflecting on the growth and distribution of wealth across households is what wealth comprises. In fact, it comprises one of four components:
- Net Financial wealth – the value of financial assets (savings and financial investments) less any financial liabilities (loans and arrears)
- Physical wealth – the value of household contents, possessions, valuables and vehicles
- Private pension wealth – the value of private pensions, such as occupational pensions and personal pensions
- Net property wealth – the value of any property owned (including other land/properties owned abroad) less the value of any loans or mortgages secured on these properties.
Figure 1 shows the evolution of aggregate wealth over the last two surveys (at constant 2016-18 prices) by the four component parts. Two components dominate the aggregate wealth of British households: property wealth (35 per cent) and private pension wealth (41-42 per cent). Financial wealth is the third largest component (14 per cent), while property wealth is the smallest component (9 to 10 per cent). (Click here for a PowerPoint of the chart.)
Trends in the average wealth of households
To help contextualise the size of wealth and begin to think about its distribution, rather than look at aggregate household wealth we can instead look at the average wealth of British households.
Figure 2 shows the average wealth (at constant 2016-18 prices) as measured by the mean (aggregate divided by the number of households) and the median (the middle household). The mean wealth of households is seen to be greater than their median wealth. In April 2016 to March 2018, average wealth as measured by the mean was £564,300 (an increase of 40.3 per cent over July 2006 to June 2008), whilst the average wealth of each household as measured by the median was £286,600 (an increase of 28.5 per cent over July 2006 to June 2008). (Click here for a PowerPoint of the chart.)
The higher mean value of wealth relative to the median value shows that the distribution of wealth is unequal. Therefore, the mean-to-median ratio is an indicator of inequality. In April 2016 to March 2018 the mean-to-median ratio was 1.97, up from 1.94 in April 2014 to March 2016 and 1.77 in July 2008 to June 2010, and 1.8 in the first survey in July 2006 to June 2008. This metric is therefore consistent with a more unequal distribution of wealth having arisen since the second survey in July 2008 to June 2010, a period during which the UK and global economy was been buffeted by the effects of the financial crisis and the associated economic downturn.
Trends in the average income of households
Figure 3 shows the mean and median values of disposable income (adjusted for the number and age of individuals comprising each household). Mean disposable income of UK households in financial year ending (FYE) 2018 was £35,928, a 0.5 per cent real decrease over FYE 2017, whilst median wealth (middle household) was £29,598 in FYE 2018, a 1.5 per cent real increase over FYE 2017. (Click here for a PowerPoint of the chart.)
The higher mean value of disposable income relative to the median value is indicative of inequality in disposable income. In FYE 2018 the mean-to-median ratio for disposable income was 1.21, down from 1.24 in FYE 2017 and a peak of 1.27 in FYE 2014, but higher than the 1.10 in 1978. The longer-term growth in the inequality of income helps to exacerbate existing wealth inequalities.
Comparing the inequality of income and wealth
Figure 4 shows starkly the current inequality in wealth as compared to that in income. It does so by plotting their respective Lorenz curves. The curves show the proportion of overall wealth or income attributable to a given proportion of households. For example, 50 per cent of households have close to 28 per cent of total disposable income and a mere 8.5 per cent of aggregate wealth. (Click here for a PowerPoint of the chart.)
The inequality shown by the Lorenz curves is especially startling when we look at the top and bottom deciles. The bottom decile has just 2.9 per cent of income and only 0.07 per cent of wealth. Meanwhile the top 10 per cent of households have 28.5 per cent of income, almost the same as the first 50 percent of households, and some 44.6 per cent of wealth, with the previous 90 per cent of households having 55.4 per cent of wealth.
The Lorenz curves allow for the calculation of the Gini coefficient. It measures the area between the Lorenz curve and the 45 degree line consistent with zero inequality relative to the total area below the 45 degree line. Therefore, the Gini coefficient can take a value of between 0% (no inequality) and 100% (total inequality – where one person has all the wealth). Unsurprisingly whilst the Gini coefficient for disposable income in the UK in FYE 2018 was 34.7 per cent, that for aggregate wealth in Great Britain in April 2016 to March 2018 was significantly higher at 63.3 per cent.
The Gini coefficient for disposable income has risen from 25.5 per cent in 1977 to a peak in FYE 2008 of 38.6 per cent. It has therefore eased during the 2010s, but is nonetheless 13 percentage points higher today than it was four decades ago. Meanwhile, the Gini coefficient for wealth at the time of the first survey from July 2006 to June 2008 was 61 per cent. It has been unchanged at 63 percent over the last three surveys.
Inequality in wealth by component, location and age
It is important to recognise the inequalities in the components of wealth. This has particular importance when we are trying to understand how wealth varies by household characteristics, such as age and location.
Figure 5 shows that the highest Gini coefficient is for net financial wealth. This stood at 91 per cent in April 2016 to March 2018. This extremely high figure shows the very high levels of inequatity in net financial wealth. This reflects the fact that some households find themselves with negative net financial wealth, such that their debts exceed their assets, whilst, on the other hand, some households can have large sums in financial investments. (Click here for a PowerPoint of the chart.)
We saw at the outset that the largest two components of wealth are property wealth and private pension wealth. The Gini coefficients of these two have in recent times moved in opposite directions by roughly similar magnitudes. This means that their effects on the overall Gini coefficient have offset one another. Perhaps for many people the rise in Gini coeffcient for property from 62 per cent in July 2006 to June 2008 to 66 per cent in April 2016 to March 2018 is the inequality measure that resonates most. This is reflected in regional disparities in wealth.
Figure 6 shows the geographical disparity of median household wealth across Britain. The regions with the highest median wealth are the South East, South West, London and the East of England. They have the highest contributions from net property wealth (40.4 per cent, 35.6 per cent, 41.7 per cent and 37.2 per cent respectively). The region with the lowest median total wealth, the North East, has the least total wealth in net property wealth (24.8 per cent). (Click here for a PowerPoint of the chart.)
Property wealth and private pension wealth also contribute to disparities in wealth by the age of the head of the household, also known as the household reference person or HRP. In April 2016 to March 2018 the mean wealth where the HRP is 25-34 was £125,700, rising to £859,200 where the HRP is 55-64 and then falling to £692,300 when the HRP is 65 or over. This is consistent with households accruing wealth over time and the using wealth to help fund retirement.
Where the age of the HRP is 55-64, mean property wealth in April 2016 to March 2018 was £255,800 compared to £53,700 where the HRP is 25-34. Meanwhile, where the age of the HRP is 55-64, mean private pension wealth was £449,100 compared to just £32,300 where the HRP is 25-34. In respect of property wealth, the deterioration in the affordability of owner-occupied housing over many years will impact especially hard on younger households. This will therefore tend to exacerbate inter-generational wealth inequality.
Whilst this briefing provides an overview of recent patterns in income and wealth inequality in Britain, the articles and press releases below consider the impact that the COVID-19 pandemic may have on inequalities.
Articles and Press Releases
- Many better-off households may increase savings as spending on ‘banned’ activities falls. Poorer households spend much more of their income on necessities and will be less resilient to any falls in income
IFS Press Release, Rowena Crawford, Alex Davenport, Robert Joyce and Peter Levell (08/04/20)
- Sector shut-downs during the coronavirus crisis affect the youngest and lowest paid workers, and women, the most
IFS Press Release, Robert Joyce and Xiaowei Xu (06/04/20)
- Coronavirus downturn ‘will exacerbate UK health inequality’
City A.M., James Warrington (09/04/20)
- Coronavirus pandemic exacerbates inequalities for women, UN warns
Guardian, Alexandra Villarreal (11/04/20)
- Inequality doesn’t just make pandemics worse – it could cause them
Guardian, Laura Spinney (12/04/20)
- The Coronavirus Will Be a Catastrophe for the Poor
The Atlantic, Derek Thompson (20/03/20)
- EU-wide inequality is back to pre-crisis levels
Social Europe, Michael Dauderstädt (15/04/20)
- Coronavirus makes inequality a public health issue
World Economic Forum, Alexandre Kalache (President, International Longevity Centre-Brazil) (13/04/20)
- Economist Joseph Stiglitz says coronavirus is ‘exposing’ health inequality in US
- CNBC, Jesse Pound (14/04/20)
ONS Bulletins
Questions
- In what ways can we use statistics to help measure and inform our analysis of inequality?
- In what ways can income inequality impact on wealth inequality?
- How can wealth inequality impact on income inequality?
- What might explain why wealth inequality is greater than income inequality?
- Explain how Lorenz curves help to generate Gini coefficients.
- Why would we expect the wealth of households with a younger household reference person (HRP) to be lower than that of a household with an older HRP? Would we expect this average to rise over all age ranges?
- If you were advising a government on policies to reduce income and wealth inequalities what sort of measures might you suggest?
- What is the difference between original income and disposable income?
- What is the difference between disposable income and equivalised disposable income?
- What role does the housing market play in affecting wealth inequality?
- Why is net financial wealth so unequally distributed?
- What is meant by health inequality? Of what significance is this for income and wealth inequality?
- What is meant by social mobility? Of what significance is this for income and wealth inequality?
As the Coronavirus pandemic continues to escalate in the UK, the government has been forced to introduce a range of drastic measures, including severe restrictions on movement of people to ensure social distancing. Supermarkets have also been forced to act as they experienced panic buying and struggled to keep up with supply. They responded by starting to impose limits on the number of certain items an individual consumer could purchase and by reducing the range of products they made available. In addition, supermarkets contacted the government to suggest that competition law should be relaxed to allow the rival chains to coordinate their response to the ongoing situation.
WM Morrison, the forth largest supermarket retailer in the UK, was one of the key players lobbying for this change. Their chief executive, David Potts, argued that “There will be legislation that works perfectly in peacetime and not so well in wartime.”
The supermarket industry is in fact a market where the UK competition authorities have expressed considerable concerns in the past regarding a lack of competition (see for example the 2008 market investigation and the recent decision to block the merger between Sainsbury’s and Asda). The supermarkets also previously made similar demands for a relaxation of competition law in the event of a no-deal Brexit.
Despite this, the government has agreed to temporarily relax elements of competition law to help supermarkets respond to the Coronavirus crisis with the Environment Secretary, George Eustice, stating that:
By relaxing elements of competition laws temporarily, our retailers can work together on their contingency plans and share the resources they need with each other during these unprecedented circumstances.
In moves supported by the Competition and Markets Authority, laws enabling them to do so will soon be passed through Parliament. Supermarkets will be allowed to:
- share data with each other on stock levels
- cooperate to keep shops open
- share distribution depots and delivery vans
- pool staff with one another to help meet demand.
It is also expected that the Groceries Code Adjudicator will take a pragmatic approach to rules previously in place to prevent the big supermarket chains abusing their power over suppliers. These rules previously prevented supermarkets from stopping orders from a given supplier without reasonable warning. However, it is now accepted that they may need to do so in order to focus on supplying a restricted range of essential products.
Such relaxation of competition laws has been rare, with previous examples being measures taken in 2006 for the maintenance and repair of warships and in 2012 during the fuel crisis. In contrast, typically competition law is extremely hot on preventing agreements between firms. This is due to the fact that they distort competition and prevent the considerable benefits that can arise for consumers when firms compete to offer the best deals.
In the extreme situation the UK is currently in, the government’s stance appears to be that there are sufficient other benefits from restricting competition between supermarkets and allowing some degree of cooperation. It is then important that the form of cooperation between the supermarkets is restricted to narrow areas that will help to ensure the continuity of supply. In particular, it would be worrying if the supermarkets started discussing the prices they charge. Already food prices may rise due to increased demand and a potential shortage of supply. Furthermore, many consumers will see their income reduced. Therefore, it is important that coordination between supermarkets doesn’t result in further increases in prices.
It is therefore reassuring that the Government made clear that the relaxation of competition law:
will be a specific, temporary relaxation to enable retailers to work together for the sole purpose of feeding the nation during these unprecedented circumstances. It will not allow any activity that does not meet this requirement.
The Competition and Markets Authority has also stressed that they will not:
tolerate unscrupulous businesses exploiting the crisis as a ‘cover’ for non-essential collusion. This includes exchanging information on longer-term pricing or business strategies, where this is not necessary to meet the needs of the current situation.
Once the current crisis is over, it will also be important that the competition authority closely monitors the supermarket sector to ensure that cooperation between the supermarkets ends and normal competitive conduct is resumed.
Articles
Questions
- Outline the effects agreements between firms to raiser prices have on economic welfare.
- What are the pros and cons of allowing cooperation between the supermarkets in response to the Coronavirus crisis?
At the annual World Economic Forum (WEF) in Davos, Switzerland, world political and business leaders are meeting to discuss pressing economic issues of the day. This year, one of the key themes is climate change and “how to save the planet”.
The approaches of leaders to the climate crisis, however, differ enormously. At the one extreme there are those who deny that emissions have caused climate change, or who reluctantly acknowledge climate change but think that governments need to do nothing and that technological advances in green energy and transport will be sufficient to curb global warming. This has been the approach of President Trump, President Bolsonaro of Brazil and Prime Minister Scott Morrison of Australia. They may claim to support the general goals of reducing greenhouse gases, but are keen to protect their coal and oil industries and, in the case of Brazil, to continue cutting down the Amazon rain forest to support mining, ranching and the growing of crops.
At his speech at the WEF, President Trump said that he supported the initiative to plant one trillion trees worldwide to act as a carbon sink. However, he gave no details of just what the nature of the support would be. Would there be subsidies or tax breaks, for example, for landowners to plant trees? In the meantime, his administration has relaxed regulations to curb air and water pollution. And he has withdrawn the USA from the Paris climate agreement.
Other leaders, urged on by activists, such as Greta Thunberg, have talked about tougher action to tackle emissions. Countries such as Canada, Norway and the EU countries have adopted a number of initiatives. Policies range from taxing emissions, capping/regulating emissions with penalities for those breaching the limits, tradable permits, subsidising green alternatives, setting local emissions targets with incentives for meeting them, investing in green infrastructure such as roadside charging points for electric vehicles, making environmental education part of a national curriculum, investing in public transport, and so on. But, say, activists, only large-scale measures that truly recognise the scale of the climate emergency will be sufficient.
The year starts with climate being addressed at Davos; it ends with the annual Conference of the Parties (COP26) to the United Nations Framework Convention on Climate Change (UNFCCC). This year it will be in Glasgow. There is much hope pinned on this conference, given the growing realisation of the effects of climate change, from bush fires in Australia, to floods in Indonesia and other parts of southeast Asia, to more extreme hurricanes/typhoons, to rapidly melting glaciers and retreating sea ice, to rising sea levels, to crop failures and the displacement of humans and the destruction of wildlife and habitat.
COP25 in Madrid made little progress; it is hoped that COP26 will be much more successful. Sir David Attenborough has warned that the world faces a ‘climate crisis moment’. He hopes that the world will be ready to take much stronger action at COP26.
But there remains the fundamental economic problem of the tragedy of the commons. As long as the atmosphere and other parts of the environment are free to ‘use’ to pollute, and as long as the costs of doing so are borne largely by people other than the direct polluters, the market will fail to provide a solution. Australia’s bush fires can be directly attributed to climate change and climate change is exacerbated by coal-fired power stations. But Australia’s use of coal as a power source is only a tiny contributor to global climate change. Presumably, the Australian government would rather get a ‘free ride’ off other countries’ policies to cut emissions rather than bearing the economic cost of reducing coal-fired generation itself for little gain in terms of reduced global emissions.
However, people are not entirely selfish. Many are willing to make personal sacrifices to lead a more environmentally sustainable life. Many people, for example, are choosing electricity tariffs that are slightly higher but where the electricity is generated with zero carbon emissions. Firms have shown a readiness to respond to demands from their consumers for more sustainable products.
Articles
- Five essential steps to take right now to tackle climate change
World Economic Forum, Robin Pomeroy (17/1/20)
- Davos: Trump decries climate ‘prophets of doom’ with Thunberg in audience
BBC News (21/1/20)
- Greta Thunberg clashes with US treasury secretary in Davos
The Guardian, Graeme Wearden (23/1/20)
- Australia, your country is burning – dangerous climate change is here with you now
The Conversation, Michael E Mann (10/1/20)
- Climate change: What different countries are doing around the globe to tackle the crisis
Independent, Zoe Tidman (20/9/19)
- How we can combat climate change
Washington Post (2/1/19)
- Sir David Attenborough warns of climate ‘crisis moment’
BBC News, David Shukman (16/1/20)
- Climate change: Where we are in seven charts and what you can do to help
BBC News (14/1/20)
- Ten facts about the economics of climate change and climate policy
Brookings, Ryan Nunn, Jimmy O’Donnell, Jay Shambaugh, Lawrence H. Goulder, Charles D Kolstad and Xianling Long (23/10/19)
- The Federal Reserve Considers the Economics of Climate Change in 2020
Lawfare, Rachel Westrate (16/1/20)
- Bernie Sanders’ economic adviser says Australia’s bushfires are a climate change ‘wake-up call’
The Guardian, Ben Butler (7/1/20)
- Carbon pricing: What the research says
Journalist’s Resource, Harvard Kennedy School’s Shorenstein Center, Clark Merrefield (17/1/20)
- European Parliament backs Green Deal
Resource Media, Imogen Benson (17/1/20)
- Tackling climate change
Committee on Climate change
- Tragedy of the Commons: A Drama That Our Planet Is Not Enjoying
Felix, Xiuchen Xu (9/12/19)
Questions
- Draw a diagram to show how the external costs of carbon emissions cause a more than socially optimal output of products emitting CO2.
- What is meant by the ‘tragedy of the commons’? Give some environmental examples.
- Discuss possible solutions to the tragedy of the commons.
- Why was COP25 generally regarded as a failure?
- Identify four possible policies that governments could adopt to reduce carbon emissions and discuss their relative advantages and disadvantages.
- Are meetings such as the annual World Economic Forum meetings at Davos of any benefit other than to the politicians attending? Explain.