The Clean Energy Bill has been on the agenda for some time and not just in the UK. With climate change an ever growing global concern, investment in other cleaner energy sources has been essential. However, when it comes to investment in wind farms, developers have faced significant opposition. The balancing act for the government appears to be generating sufficient investment in wind farms, while minimising the negative externalities.
The phrase often thrown around with regards to wind farms, seems to be ‘not in my backyard’. That is, people recognise the need for them, but don’t want them to be built in the local areas. The reason is to do with the negative externalities. Not only are the wind farms several metres high and wide, creating a blight on the landscape, but they also create a noise, both of which impose a third party effect on the local communities. These factors, amongst others, have led to numerous protests whenever a new wind farm is suggested. The problem has been that with such challenging targets for energy, wind farms are essential and thus government regulation has been able to over-ride the protests of local communities.
However, planning guidance in the UK will now be changed to give local opposition the ability to override national energy targets. In some sense, more weight is being given to the negative externalities associated with a new wind farm. This doesn’t mean that the government is unwilling to let investment in wind farms stop. Instead, incentives are being used to try to encourage local communities to accept new wind farms. While acknowledging the existence of negative externalities, the government is perhaps trying to put a value on them. The benefits offered to local communities by developers will increase by a factor of five, thus aiming to compensate those affected accordingly. Unsurprisingly, there have been mixed opinions, summed up by Maria McCaffery, the Chief Executive of trade association RenewableUK:
Maria McCaffery, chief executive of trade association RenewableUK, said the proposals would signal the end of many planned developments and that was “disappointing”.
Developing wind farms requires a significant amount of investment to be made upfront. Adding to this cost, by following the government’s advice that we should pay substantially more into community funds for future projects, will unfortunately make some planned wind energy developments uneconomic in England.
That said, we recognise the need to ensure good practice across the industry and will continue to work with government and local authorities to benefit communities right across the country which are hosting our clean energy future.
The improved benefits package by the energy industry is expected to be in place towards the end of the year. The idea is that with greater use of wind farms, energy bills can be subsidised, thereby reducing the cost of living. Investment in wind farms (on-shore and off-shore) is essential. Current energy sources are non-renewable and as such new energy sources must be developed. However, many are focused on the short term cost and not the long term benefit that such investment will bring. The public appears to be in favour of investment in new energy sources, especially with the prospect of subsidised energy bills – but this positive outlook soon turns into protest when the developers pick ‘your back yard’ as the next site. The following articles consider this issue.
Residents to get more say over wind farms The Guardian, Fiona Harvey and Peter Walker (6/6/13)
Local communities offered more say over wind farms BBC News (6/6/13)
Locals to get veto power over wind farms The Telegraph, Robert Winnett (6/6/13)
Wind farms are a ‘complete scam’, claims the Environment Secretary who says turbines are causing ‘huge unhappiness’ Mail Online, Matt Chorley (7/6/13)
New planning guidance will make it harder to build wind farms Financial Times, Jim Pickard, Pilita Clark and Elizabeth Rigby (6/6/13)
Will more power to nimbys be the death of wind farms? Channel 4 News (6/6/13)
Locals given more ground to block wind farms Independent, Tom Bawden (6/6/13)
Questions
- What are the negative externalities associated with wind farms?
- Conduct a cost-benefit analysis as to whether a wind farm should be constructed in your local area. Which factors have you given greatest weight to?
- In question 2 above, were you concerned about the Pareto criterion or the Hicks-Kaldor criterion?
- If local communities can be compensated sufficiently, should wind farms go ahead?
- If the added cost to the development of wind farms means that some will no longer go ahead, is this efficient?
- Why is there a need to invest in new energy sources?
- To what extent is climate change a global problem requiring international (and not national) solution?
No market is perfect and when the market mechanism fails to deliver an efficient allocation of resources, we say the market fails and hence there is justification for some government intervention. From a monopolist dominating an industry to a manufacturing firm pumping out pollution, there are countless examples of market failure.
The Guardian is creating a guide to climate change, covering areas from politics to economics. The problem of climate change has been well documented and this blog considers a particular issue – the case for climate change or the environment as a market failure. In many cases just one market failure can be identified, for example an externality or a missing market. However, one of the key problems with climate change is that there are several market failures: externalities in the form of pollution from greenhouse gases; poor information; minimal incentives; the problem of the environment as a common resource and the immobility of factors of production, to name a few. Each contributes towards a misallocation of resources and prevents the welfare of society from being maximised.
When a market fails, intervention is justified and economists argue for a variety of policies to tackle the above failures. In a first-best world, there is only one market failure to tackle, but in the case of the environment, policy must be designed carefully to take into account the fact that there are numerous failings of the free market. Second-best solutions are needed. Furthermore, as the problem of climate change will be felt by everyone, whether in a developed or a developing country, international attention is needed. The two articles below are part of the Guardian’s ultimate climate change guide and consider a huge range of economic issues relating to the problem of environmental market failure.
Why do economists describe climate change as a ‘market failure’? Guardian, Grantham Research Institute and Dunca Clark (21/5/12)
What is the economic cost of climate change? Guardian (16/2/11)
Questions
- What is meant by market failure?
- What are the market failures associated with the environment and climate change? In each case, explain how the issue causes an inefficient allocation of resources and thus causes the market to fail? You may find diagrams useful!
- What is meant by the first-best and second-best world?
- What does a second-best solution aim to do?
- Using diagrams to help your explanation, show how a tax on pollution will have an effect in a first best world, where the only market failure is a negative externality and in a second best world, where the firm in question is also a monopolist.
- What solutions are there to the problem of climate change? How effective are they likely to be?
- Does the need to tackle climate change require international co-operation? Can you use game theory to help your explanation?!
Ministers from around the world met in Durban in the first two weeks of December 2011 to hammer out a deal on tackling climate change. The aim was that this would replace the Kyoto Treaty, due to expire at the end of 2012.
International climate change agreements are particularly difficult to achieve, as there are several market failures involved. Also, there is considerable ‘gaming’, as each country seeks to negotiate a deal that benefits the world as a whole but which minimises the disadvantages to their own particular country.
The conference ended on the 11 December with a last-minute deal. Both developed and developing countries would for the first time work on a legally binding agreement to limit emissions. This would be drawn up by 2015 and to come into force after 2020. The following articles assess the significance of the agreement and whether it represents real progress or little more than a deal to work on a deal.
Articles
‘Modest’ gains as UN climate deal struck Independent (11/12/11)
Landmark deal saves climate talks Irish Examiner (11/12/11)
Durban climate change: the agreement explained The Telegraph, Louise Gray (11/12/11)
Durban climate conference agrees deal to do a deal – now comes the hard part Guardian, Fiona Harvey and Damian Carrington (13/12/11)
Climate deal: A guarantee our children will be worse off than us Guardian, Damian Carrington (11/12/11)
Durban climate deal: the verdict Guardian, Damian Carrington (12/12/11)
Australia hails Cop 17 agreement News 24 Australia (11/12/11)
Climate talks reach new global accord Financial Times, Andrew England and Pilita Clark (11/12/11)
Durban Climate Talks Produce Imperfect Deals Voice of America, Gabe Joselow (11/12/11)
Critics slam climate agreement t Sydney Morning Herald, Arthur Max (11/12/11)
Deal at last at UN climate change talks Euronews on YouTube (11/12/11)
World still in arrears on climate change pledges Reuters Africa, Barbara Lewis (11/12/11)
New UN climate deal struck, critics say gains modest Hindustan Times (11/12/11)
Climate change: ambition gap Guardian (12/12/11)
Canada leaves Kyoto to avoid heavy penalties Financial Times, Bernard Simon (13/12/11)
Durban Platform Leaves World Sleepwalking Towards Four Degrees Warming Middle East North Africa Financial Network, Ben Grossman-Cohen and Georgette Thomas (Oxfam) (13/12/11)
A deal in Durban The Economist (11/12/11)
Assessing the Climate Talks — Did Durban Succeed? Harvard University – Belfer Center for Science and International Affairs – An Economic View of the Environment, Robert Stavins (12/12/11)
Questions
- What was agreed at the Durban Climate Change Conference?
- Why is it difficult to get agreement on measures to tackle climate change? How is game theory relevant to explaining the difficulties in reaching an agreement?
- How would you set about establishing the ‘optimal’ amount of emissions reductions?
- Why will the market fail to provide the optimal amount of emissions reductions?
- Why was it felt not possible for a legally binding international agreement to come into force before 2020?
A two-week international climate change summit opened in Cancún, Mexico, on 29 November. But will the talks make any progress in tackling global warming? Will mechanisms be put in place to ensure that the previously agreed ceiling of 2°C warming is met?
After the largely unsuccessfuly talks in Copenhagen a year ago, hopes are not high. But a likely rise in global temperatures of considerably more than 2°C could have disasterous global consequences. Indeed, new evidence suggests that even a ceiling of 2°C may be too high and that, as temperatures rise towards that level, domino effects will start that may become virtually unstoppable. As Andrew Sims in the Guardian article notes:
This is the problem. Once the planet warms to the point where environmental changes that further add to warming feed off each other, it becomes almost meaningless to specify just how much warmer the planet may get. You’ve toppled the first domino and it becomes virtually impossible to stop the following chain of events. Honestly, nobody really knows exactly where that will end, but they do know it will end very, very badly.
The following podcasts and articles look at the importance of reaching international agreement but the difficulties of doing so.
Podcasts and webcasts
Post-Copenhagen, a Cancun compromise? Reuters (30/11/10)
Climate change ‘Dragons’ Den’: What are the options? BBC News, Roger Harrabin (29/11/10)
Cancun climate change summit seeks new emissions deal BBC News, David Shukman (3/12/10)
Can nudge theory change our habits? BBC News, Claudia Hammond (29/11/10)
Articles
Cancún climate change conference 2010 Guardian, (portal)
Q&A: Cancún COP16 climate talks Guardian, Shiona Tregaskis (8/10/10)
72 months and counting … Guardian, Andrew Simms (1/12/10)
Cancún climate talks: In search of the holy grail of climate change policy Guardian, Michael Jacobs (29/11/10)
Cancún and the new economics of climate change Guardian, Kevin Gallagher and Frank Ackerman (30/11/10)
Facing the consequences The Economist (25/11/10)
UN climate talks low on expectation BBC News, Richard Black (29/11/10)
Expect little from Cancun talks The Star (Malaysia), Martin Khor (29/11/10)
Don’t let us down: UN climate change talks in Cancun Independent, Jonathan Owen and Matt Chorley (28/11/10)
Cancun and Climate: Government Won’t Act, But Business Will Time Magazine: The Curious Capitalist, Zachary Karabell (28/11/10)
At Global Climate Change Talks, an Answer Grows Right Outside Huffington Post, Luis Ubiñas (29/11/10)
Cancun climate change talks: ‘last chance’ in the snakepit The Telegraph, Geoffrey Lean (29/11/10)
Climate Change Talks Must Deliver After Record Weather Year Scoop (New Zealand), Oxfam (29/11/10)
World climate talks kick off in Cancun DW-World, Amanda Price and Axel Rowohlt (29/11/10)
On international equity weights and national decision making on climate change Vox, David Anthoff and Richard S J Tol (29/11/10)
Climate treaties all bluster, no bite The Age, Dan Cass (10/12/10)
Conference website
UNFCCC COP16/CMP6: Mexico 2010 Official site
Questions
- What would count as a ‘successful’ outcome of the climate change talks? Why might politicians interpret this differently from economists?
- What can governments do to internalise the externalities of greenhouse gas emissions?
- What insights can game theory provide into the difficulties of reaching binding climate change agreements?
- What are likely to be the most effective mechanisms for getting people to adapt their behaviour?
- Can nudge theory be used to change our habits towards the environment?
- Explain the use of equity weights in judging the effects of climate change. Are they a practical way forward in devising environmental policy?
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.
