At the G7 conference in Bavaria on 7 and 8 June 2015, it was agreed to phase out the use of fossil fuels by the end of the century. But despite this significant objective, there were no short-term measures put in place to start on the process of achieving this goal. Nevertheless, the agreement contained commitments to further developments in carbon markets, elimination of fossil fuel subsidies, incentives for the development of green energy and support for developing countries in reducing hydrofluorocarbons.
The agreement also sent a strong message to the 21st United Nations International Climate Change conference scheduled to meet in Paris from 30 November to 11 December 2015. The G7 communiqué states that binding rules would be required if the target was to be met.
The agreement should enhance transparency and accountability including through binding rules at its core to track progress towards achieving targets, which should promote increased ambition over time. This should enable all countries to follow a low-carbon and resilient development pathway in line with the global goal to hold the increase in global average temperature below 2°C.
But many environmentalists argue that a more fundamental approach is needed. This requires a change in the way the environment is perceived – by both individuals and politicians. The simple 
selfish model of consumption to maximise consumer surplus and production to maximise profit should be rejected. Instead, the environment should be internalised into decision making.
What is more, there should be an integral ecology which brings together a wide range of disciplines, including economics, in analysing the functioning of societies and economies. Rather than being seen merely as a resource to be exploited, respect and care for the environment should be incorporated into our whole decision-making process, along with protecting societies and cultures, and rejecting economic systems that result in a growing divide between rich and poor.
In his latest encyclical, On care for our common home, Pope Francis considers integral ecology, not just in terms of a multidiciplinary approach to the environment but as an approach that integrates the objectives of social justice and care for the environment into an overarching approach to the functioning of societies and economies. And central to his message is the need to change the way human action is perceived at a personal level. Decision making should be focused on care for others and the environment not on the selfish pursuit of individual gain.
With a change in heart towards other people and the environment, what would be seen as externalities in simple economic models based on rational self-interested behaviour become internal costs or benefits. Care and compassion become the drivers for action, rather than crude self interest.
A key question, of course, is how we get here to there; how society can achieve a mass change of heart. For religious leaders, such as the Pope, the approach centres on spiritual guidance. For the secular, the approach would probably centre on education and the encouragement for people to consider others in their decision making. But, of course, there is still a major role for economic instruments, such as taxes and subsidies, rules and regulations, and public investment.
Articles
G7 leaders agree to phase out fossil fuels by end of centuryEU Observer, Peter Teffer (8/6/15)
Integral Ecology Approach Links ‘Welfare of God’s People and God’s Creation’ Catholic Register (11/6/15)
President’s Corner Teilhard Perspective, John Grim (May 2015)
In his encyclical on climate change Pope Francis reveals himself to be a master of scientific detail Washington Post, Anthony Faiola, Michelle Boorstein and Chris Mooney (18/6/15)
Pope Francis Calls for Climate Action in Draft of Encyclical New York Times, Jim Yardley (15/6/15)
Pope Francis letter on climate change leaked: Draft Vatican encyclical released three days early Independent, Kashmira Gander and Michael Day (15/6/15)
The Pope is finally addressing the gaping hole in the Judaeo-Christian moral tradition Independent, Michael McCarthy (15/6/15)
Pope Francis warns of destruction of Earth’s ecosystem in leaked encyclical The Guardian, Stephanie Kirchgaessner and John Hooper (16/6/15)
Explosive intervention by Pope Francis set to transform climate change debate The Observer, John Vidal (13/6/15)
Pope Francis’ Leaked Encyclical Draft Attributes Climate Change To Human Activity Huffington Post, Antonia Blumberg (15/6/15)
Pope Francis’ Integral Ecology Huffington Post, Dave Pruett (28/5/15)
Videos
Pope Francis: Climate change mostly man-made BBC News, Caroline Wyatt (18/6/15)
Pope urges action on global warming in leaked document BBC News, Chris Cook (16/6/15)
Questions
- What do you understand by ‘integral ecology’?
- Is an integrated approach to the environment and society consistent with ‘rational’ behaviour (a) in the narrow sense of ‘rational’ as used in consumer and producer theory; (b) in a broader sense of making actions consistent with goals?
- Can cost–benefit analysis be used in the context of an integrated and cross-disciplinary approach to the environment and society?
- What types of incentives would be useful in achieving the approach proposed by Pope Francis?
- Why do many companies publicly state that they pursue a policy of corporate responsibiliy?
- To what extent does it make sense to set targets for the end of this century?
- In what crucial ways might GDP need to be adjusted if it is to be used as a measure of the success of the approach to society, the economy and the environment as advocated by Pope Francis?
As was discussed on this blog, the rights to broadcast live Premier League football matches in the UK were recently auctioned off for a staggering £1.7bn per season. In the Premier League all of the clubs join forces to sell the rights collectively.
On the face of it, this collective selling would appear to be a potential breach of competition laws that prevents agreements between firms. However, despite some concerns and complaints, collective selling of football TV rights has been allowed, firstly because it is argued that it results in a more equal distribution of income amongst clubs, thus enhancing competitive balance and resulting in a more attractive product for the fans; secondly, because some of the revenue raised is redistributed down the football pyramid to lower league clubs.
In contrast to the Premier League, in Spain the clubs have traditionally sold their rights individually. This has been regarded as a significant advantage for the Spanish giants, Barcelona and Real Madrid.
For the 2013–14 season in total clubs in the top division in Spain earned substantially less than their counterparts in England. However, Barcelona and Real Madrid earned around 1/3 of the total and more than any club in England, whereas the league winners that year, Atletico Madrid, earned only around half that of Cardiff City which finished bottom of the Premier League. Despite this, it is interesting to note that, at least in terms of league winners, the Spanish league has been more competitive than the German league despite the rights being sold collectively in the latter.
However, the way in which the rights are sold in Spain may be about to change. A few weeks ago, following pressure from the majority of clubs, the Spanish government approved a law that will introduce collective selling. The sport ministry spokesman described this change as allowing Spanish football to ‘adopt to modern times’.
It has been reported that there is a clause in the legislation that guarantees all clubs an increase in revenues above what they currently earn from selling their TV rights individually. This may have been essential to persuade the larger clubs, in particular Barcelona and Real Madrid, to support the new legislation.
The change in legislation still needs to be cleared by the Spanish parliament and there has been a threat of strike action. It is also unclear how the clause described above might affect the standing of the collective agreement under competition law.
Assuming the change does go ahead, it will be interesting to see how much the subsequent collective sale of TV rights raises. One estimate suggests a significant increase, but still much less than in the Premier League. Even more fascinating will be in the longer term to see what knock-on effect this has on the degree of competitive balance in the league.
Barcelona back collective TV rights in La Liga City a.m., Joe Hall (04/08/14)
Is the balance of power in Spain’s La Liga set to change after historic TV rights change Sport.co.uk, Jason King (02/05/15)
Court suspends Spanish football strike Financial Times, Tobias Buck (14/05/15)
Questions
- Why does competition policy typically prohibit agreements between firms?
- Do you think collective selling will always have a significant effect on the degree of competitive balance in a sports league? What other factors are likely to be important?
- Assuming the new legislation goes ahead, how do you think Spanish football will change?
- Can you think of any other situations where agreements between firms may be beneficial?
Climate change is a global issue and reports indicate that more and more people are concerned about buying environmentally friendly products. We have seen tighter emissions targets and companies across the word investing in new technologies to reduce their emissions. But what can the Church of England do?
The Church of England has numerous investments, which help generate its revenue. Some of these investments are in fossil fuel companies, which are extracting resources and polluting the environment. The Church’s new environmental policy will see it selling any of its investments in companies where more than 10% of its revenue is generated from extracting thermal coal or the production of oil from tar sands. Estimates suggest that this is a total of £12 million. The Deputy Chair of the Church’s Ethical Investment Advisory Group (EIAG) said:
“The Church has a moral responsibility to speak and act on both environmental stewardship and justice for the world’s poor who are most vulnerable to climate change … This responsibility encompasses not only the Church’s own work to reduce our own carbon footprint, but also how the Church’s money is invested and how we engage with companies on this vital issue.”
However, some have seen this as ‘trivial act’, suggesting it will have limited effect on the environment and have criticised some for suggesting that the biggest moral issue facing the world is climate change. But, with more companies recognising their ‘moral responsibility’, perhaps this decision by the Church of England is unsurprising. The following articles consider this topic.
Church of England divests from coal, tar sands as adopts new climate change policy Reuters (30/4/15)
Church of England wields its influence in fight against climate change The Guardian, Damian Carrington (1/5/15)
Church of England Bishop provokes anger by saying the biggest moral issue affecting the world is … CLIMATE CHANGE Mail Online, Steve Doughty (2/5/15)
Church of England to sell fossil fuel investments BBC News (1/5/15)
Church of England blacklists coal and tar sands investments Financial Times, Pilita Clark (30/4/15)
Church of England ends investments in heavily polluting fossil fuels The Guardian, Adam Vaughan (30/4/15)
Church of England pulls out of fossil fuels, but where does it invest its cash? Independent, Hazel Shefield (1/5/15)
Questions
- Why is climate change a global issue?
- How might the Church of England’s decision affect environmental policy in fossil fuel companies?
- What other action has the Church of England taken to tackle climate change?
- The Church and the articles suggest that the poor are the most vulnerable to climate change. Why is this?
- Do you think the Church of England will lose money by divesting itself of some of these investments?
- If the Church of England now has more money to invest, which factors might influence its decision as to where it should invest?
- Where does the Church of England get its money from? What does it spend it on?
For years, the UK consumer organisation, Which?, has exposed misleading supermarket pricing practices. These include bogus price reductions, ‘cheaper’ multi-buys, smaller pack sizes and confusing special offers. Claiming that these practices are still continuing, Which? has made a super-complaint (available to designated consumer bodies) to the competition regulator, the Competition and Markets Authority (CMA).
Commenting on this action, Which? executive director, Richard Lloyd said:
“Despite Which? repeatedly exposing misleading and confusing pricing tactics, and calling for voluntary change by the retailers, these dodgy offers remain on numerous supermarket shelves. Shoppers think they’re getting a bargain but in reality it’s impossible for any consumer to know if they’re genuinely getting a fair deal.
We’re saying enough is enough and using one of the most powerful legal weapons in our armoury to act on behalf of consumers by launching a super-complaint to the regulator. We want an end to misleading pricing tactics and for all retailers to use fair pricing that people can trust.”
The CMA will consider the issues raised under the super-complaint to establish whether any of them are significantly harming the interests of consumers. It will publish a response within 90 days from the receipt of the complaint on 21 April 2015. The possible outcomes include:
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recommending the quality and accessibility of information for consumers is improved |
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encouraging businesses in the market to self-regulate |
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making recommendations to government to change the legislation or public policy |
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taking competition or consumer enforcement action |
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instigating a market investigation or market study |
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a clean bill of health |
Some 40% of groceries are sold on promotion. Supermarkets are well aware that consumers love to get a bargain and use promotions to persuade consumers to buy things they might not otherwise have done.
What is more, consumer rationality is bounded by the information and time available. People are often in a hurry when shopping; prices change frequently; people are often buying numerous low-value items; and they don’t know what competitors are charging. People may thus accept an offer as genuine and not spend time investigating whether it is so. Supermarkets know this and use all sorts of tactics to try to persuade people that they are indeed getting a bargain.
Videos
Supermarkets Face Super-Complaint On Pricing Sky News (21/4/15)
UK supermarkets face possible probe over pricing practices Reuters, Neil Maidment (21/4/15)
Which? launches ‘super-complaint’ against supermarkets BBC News, Stephanie McGovern (21/4/15)
Articles
UK supermarkets dupe shoppers out of hundreds of millions, says Which? The Guardian, Rebecca Smithers (21/4/15)
Supermarkets face inquiry into ‘rip-offs’ The Telegraph, Dan Hyde (21/4/15)
15 supermarket rip-offs that led to an inquiry The Telegraph, Dan Hyde (21/4/15)
What does Which?’s supermarket pricing complaint mean for you? The Guardian (21/4/15)
Supermarkets hit back over Which? report on pricing Financial Times (21/4/15)
Press release
Which? ‘super-complains’ about misleading supermarket pricing practices Which? (21/4/15)
CMA case page
Groceries pricing super-complaint Competition and Markets Authority (21/4/15)
Questions
- Give examples of supermarket offers that are misleading.
- Why are supermarkets able to ‘get away with’ misleading offers?
- How can behavioural economics help to explain consumer behaviour in supermarkets?
- Identify some other super-complaints have been made to the CMA or its predecessor, the Office of Fair Trading. What were the outcomes from the resulting investigations.
- What is meant by ‘heuristics’? How might supermarkets exploit consumers’ use of heuristics in their promotions?
The US economy has been performing relatively well, but as with the UK economy, growth in the first quarter of 2015 has slowed. In the US, it has slowed to 0.2%, which is below expectations and said to be due to ‘transitory factors’. In response, the Federal Reserve has kept interest rates at a record low, within the band 0.0% to 0.25%.
The USA appears relatively unconcerned about the slower growth it is experiencing and expects growth to recover in the next quarter. The Fed said:
“Growth in household spending declined; households’ real incomes rose strongly, partly reflecting earlier declines in energy prices, and consumer sentiment remains high. Business fixed investment softened, the recovery in the housing sector remained slow, and exports declined.”
Nothing has been said as to when interest rates may rise and with this unexpected slowing of the economy, further delays are likely. An investment Manager from Aberdeen Asset Management said:
“The removal of the Fed’s time dependent forward guidance could be significant. It means that any meeting from now on could be the one when they announce that magic first rate rise.”
Low rates will provide optimal conditions for stimulating growth. A key instrument of monetary policy, interest rates affect many of the components of aggregate demand. 
Lower interest rates reduce the cost of borrowing, reduce the return on savings and hence encourage consumption. They can also reduce mortgage repayments and have a role in reducing the exchange rate. All of these factors are crucial for any economic stimulus.
Analysts are not expecting rates to rise in the June meeting and so attention has now turned to September as the likely time when interest rates will increase and finally reward savers. Any earlier increase in rates could spell trouble for economic growth and similar arguments can be made in the UK and across the eurozone. The following articles consider the US economy.
Federal Reserve keeps interest rates at record low BBC News, Kim Gittleson (29/4/15)
Shock stalling of US economy hits chances of early Fed rate rise The Guardian, Larry Elliott (29/4/15)
US Fed leave interest rates unchanged after poor GDP figures Independent, Andrew Dewson (30/4/15)
Fed could give clues on first interest rate hike USA Today, Paul Davidson (28/4/15)
Fed’s downgrade of economic outlook signals longer rate hike wait Reuters, Michael Flaherty and Howard Schneider (29/4/15)
Five things that stopped the Fed raising rates The Telegraph, Peter Spence (29/4/15)
Questions
- By outlining the key components of aggregate demand, explain the mechanisms by which interest rates will affect each component.
- How can inflation rates be affected by interest rates?
- Why could it be helpful for the Fed not to provide any forward guidance?
- What are the key factors behind the slowdown of growth in the USA? Do you agree that they are transitory factors?
- Who would be helped and harmed by a rate rise?
- Consider the main macroeconomic objectives and in each case, with respect to the current situation in the USA, explain whether economic theory would suggest that interest rates should (a) fall , (b) remain as they are, or (c) rise.
At the G7 conference in Bavaria on 7 and 8 June 2015, it was agreed to phase out the use of fossil fuels by the end of the century. But despite this significant objective, there were no short-term measures put in place to start on the process of achieving this goal. Nevertheless, the agreement contained commitments to further developments in carbon markets, elimination of fossil fuel subsidies, incentives for the development of green energy and support for developing countries in reducing hydrofluorocarbons.
selfish model of consumption to maximise consumer surplus and production to maximise profit should be rejected. Instead, the environment should be internalised into decision making.
With a change in heart towards other people and the environment, what would be seen as externalities in simple economic models based on rational self-interested behaviour become internal costs or benefits. Care and compassion become the drivers for action, rather than crude self interest.
