Economic growth is normally seen as the most important long-term macroeconomic objective. Without economic growth, so it is argued, people will be unable to achieve rising living standards. But, according to Nicholas Stern, Professor of Economics and Government at the London School of Economics, former head of the Government Economic Service, former World Bank chief economist and author of the 2006 Stern Review on the Economics of Climate Change, countries will need to reconsider making growth the goal of their societies.
Speaking to students at the People’s University of Beijing, Lord Stern warned that unless substantial cuts were made in carbon emissions, the effects of global warming would have devastating effects on people’s lives. As the Stern report stated, “Climate change will affect the basic elements of life for people around the world – access to water, food production, health, and the environment. Hundreds of millions of people could suffer hunger, water shortages and coastal flooding as the world warms.” The implications are that countries must making cutting carbon emissions a priority and must reconsider their growth strategies. In his speech he said that “Beijing should shift the economy away from heavy industry, manufacturing for exports and other high-emission activities. Instead, it should focus more on domestic consumption, service industries and low-carbon technology.”
So should countries rethink their economic objectives? Is economic growth either a necessary or sufficient condition for an increase in human welfare? Read the articles and then consider the questions below.
World must help China shift to clean growth-Stern Reuters (11/9/09)
Stern Truths: Some Parts of China Have Western-Style Emissions Wall Street Journal (11/9/09)
Stern: Rich nations will have to forget about growth to stop climate change Guardian (11/9/09)
Stern words in Beijing Hot Topic (New Zealand) (13/9/09)
Questions
- Are the objectives of economic growth and tackling gobal warming necessarily incompatible?
- What would a low carbon growth strategy look like?
- What would you include in the opportunity costs of maintaining a high growth strategy compared with switching to a lower carbon, lower growth one?
- Consider whether economic growth is (a) a necessary condition; (b) a sufficient condition for a growth in the wellbeing of the human race.
The traditional macroeconomic issues are well-known: unemployment, inflation, economic growth and the balance of payments. However, the environment, and specifically climate change, have become increasingly important objectives for the global economy. Over recent months, many countries have announced new policies and measures to tackle climate change.
The costs of not tackling climate change are well-documented, but what about the costs of actually tackling it? Why is a changing climate receiving such attention and what are the economics behind this problem? The articles below consider this important issue.
Tougher climate target unveiled BBC News (16/10/08)
Brown proposes £60 billion climate fund BBC News (26/6/09)
EU says tackling climate change will cost global economy €400 billion a year Irish Times, Frank McDonald (26/6/09)
Obama makes 11th-hour climate change push Washington AFP, Ammenaul Parisse (25/6/09)
UK to outline emission cut plans BBC News (26/6/09)
What’s new in the EU: EU examines impact of climate change on jobs The Jerusalem Post, Ari Syrquin (25/6/09)
Climate change: reducing risks and costs The Chronicle Herald, Jennifer Graham (25/6/09)
Obama to regulate ‘pollutant’ CO2 BBC News (17/4/09)
Billions face climate change risk BBC News (6/5/07)
Obama vows investment in science BBC News (27/4/09)
Japan sets ‘weak’ climate target BBC News (10/6/09)
Questions
- Why is climate change an example of market failure?
- Apart from imposing limits on emissions, what other interventionist policies could be used? What are the advantages and disadvantages of each of them?
- According to the EU, the cost of tackling climate change is very high. So, why are we doing it? See if you can carry out a cost-benefit analysis!
- Why is climate change presenting a problem for insurance companies? Can it be overcome?
- Why is finance such an issue between developed and developing countries in relation to tackling climate change?
- What is the likely impact of climate changing policies on the labour market? Will we be able to adapt in the current economic crisis?
March 2007 has seen a lot of activity in government circles relating to the environment and environmental legislation. The EU has agreed a renewable energy target for all members while the UK government has released its own climate change bill. The Carbon Trust has then released a one-year pilot of a carbon labelling scheme, with Walkers Crisps being the first brand to bear the carbon labels. The aim is to increase consumers’ awareness of the carbon footprint of the goods they are buying. The articles linked below look at all these issues.
EU agrees renewable energy target BBC News Online (9/3/07)
EU seeks converts to eco-stoicism BBC News Online (9/3/07)
Navarra embraces green energy BBC News Online (9/3/07)
How Europe can save the world Guardian (11/3/07)
Carbon labelling scheme launched BBC News Online (15/3/07)
Labels reveal goods’ carbon cost BBC News Online (16/3/07)
New law in the climate jungle BBC News Online (13/3/07)
Questions
| 1. |
Explain the difference between private costs and external costs. Identify five external costs that arise from the generation of electricity by conventional means. |
| 2. |
Using diagrams as appropriate, show the impact on the market for energy of increased use of energy generated from renewable sources. |
| 3. |
Evaluate the likely effectiveness of the carbon labelling scheme introduced by the Carbon Trust. |
The world of ‘carbon offsetting’ has suddenly become trendy. With bands like Coldplay and the Rolling Stones making their tours ‘carbon neutral’ and government ministers offsetting all the environmental cost of their overseas travel, the industry has hit the limelight. Even Tony Blair, under pressure over his personal holidays has relented and agreed that he will offset all his personal travel. However, up to now the industry has been unregulated and standards have been uncertain. Defra has now set new standards for the industry to comply with and the articles below consider the impact of this regulation.
Questions
| 1. |
Using diagrams as appropriate, explain how carbon offsetting is intended to reduce the environmental impact of plane travel. |
| 2. |
Discuss the effectiveness of carbon offsetting as an approach to reducing the impact of increasing plane travel. |
| 3. |
Suggest one demand-side and one supply-side policy to reduce the carbon emissions resulting from air travel and assess their relative effectiveness. |