Every year, world leaders gather to find ways of limiting global warming. The latest of these ‘COP’ meetings, COP30, is in Belém, Brazil from 10 to 20 November 2025. COP stands for ‘Conference of the Parties’, the decision-making body of the United Nations Framework Convention on Climate Change (UNFCCC).
Perhaps the best-known of these meetings was in Paris in 2015. This resulted in the Paris Agreement. This is a legally-binding international treaty to limit global warming to well below 2°C and preferably to 1.5°C above pre-industrial levels. This would involve reducing greenhouse gas emissions and/or taking carbon absorbing measures. All UN countries except for Iran, Libya and Yemen are signatories to the agreement.
However, on coming to office in January 2025, President Trump announced that the USA will withdraw from the agreement in January 2026. Instead, he would prioritise fossil fuel production, under the mantra, ‘drill, baby, drill’. Previously he had claimed that global warming is a hoax concocted by China designed to undermine the competitive power of the USA.
Progress in reducing emissions and mitigating climate change
Since 2020, each country has been required to submit its own emissions-reduction targets, known as ‘nationally determined contributions’ (NDCs), and the actions it will take to meet them. Every five years each country must submit a new NDC more ambitious than the last. New NDCs are due this year. As of 12 November, 112 of the 197 countries had submitted a new NDC (including the USA, China, the EU and the UK). These 112 countries account for around 71 per cent of global emissions.
Implementing all new NDCs would reduce global CO2 emissions by between 15 and 25 per cent from current levels by 2035. But this would merely reduce global warming to around 2.6°C above pre-industrial levels. Approximately 35 per cent emissions reductions by 2035 would be required to restrict global warming to 2°C and 55 per cent to restrict it to 1.5°C.
But implementing the Paris Agreement has still had a high degree of success. Without the action taken and being taken over the past 10 years, it is predicted that global temperatures by 2050 would rise by 3–3.5°C.
Rich countries are expected to provide finance to low-income countries. This is required to help such countries adopt green technologies and to adapt to the harmful effects of climate change (e.g. through irrigation schemes and flood defences). At COP29 in Azerbaijan, the ‘Baku Finance Goal’ was agreed. This is an agreement to provide climate finance of $1.3 trillion per year by 2035 to developing countries from all public and private sources.
The subsequent ‘Baku to Belém Roadmap’ provides a set of suggested actions for governments, financial institutions and the private sector to bridge the gap between current climate finance flows and the $1.3 trillion agreed to meet global climate goals. The roadmap is a central focus of the COP30 conference in Belém, with discussions between countries on how to translate the Baku finance goal into concrete, tangible actions and integrate it into formal decisions.
The role of Donald Trump
As well as announcing that the USA will withdraw from the Paris Agreement in January 2026, since coming to office in 2025, President Trump has given billions of dollars of tax cuts to fossil fuel firms and allowed drilling for oil and gas on federal lands. At the same time, he has described renewable energy as ‘a joke’ that will bankrupt countries and has slashed subsidies and tax breaks for solar and wind power, withdrawn permits for wind and solar farms, and cut funding for green energy research.
He wants the USA to be world leader in fossil fuel energy, calling on governments to buy US oil and gas, threatening some countries with tariffs if they do not. Already, Japan, South Korea and several European countries have agreed to buy huge quantities of US oil and liquefied natural gas (LNG). A worry is that other similarly inclined governments, such as Argentina, may roll back on their commitments to a green transition and instead boost their fossil fuel industries.
This gives added urgency to the Belém talks. It is crucial for the rest of the world to stick together in pushing ahead to combat global warming and in adopting and sticking to tough NDCs. It is also crucial for rich countries to support dlow-income countries in adopting climate-friendly investment and in measures to mitigate the effects of global warming.
The economics of climate change
Climate change is directly caused by market failures. One of the most important of these is that the atmosphere is a common resource: it is not privately owned; it is a global ‘commons’. Individuals and firms use it at a zero price. If the price of any good or service to the user is zero, there is no incentive to economise on its use. Thus for the emitter there are no private costs of using the atmosphere in this way as a ‘dump’ for their emissions and, in a free market, no incentive to reduce the climate costs.
And yet when firms emit greenhouse gases into the atmosphere there are costs to other people. To the extent that they contribute to global warming, part of these costs will be borne by the residents of that country; but a large part will be borne by inhabitants of other countries.
These climate costs are external costs to the firm and are illustrated in the figure. It shows an industry that emits CO2. To keep the analysis simple, assume that it is a perfectly competitive industry with demand and supply given by curves D and S, which are equal to the marginal private benefits (MPB) and marginal private costs (MPC), respectively. There are no externalities on the demand side and hence MPB equals the marginal social cost (MSB). Market equilibrium is at point a, with output at Qpc and price at Ppc. (Click here for a PowerPoint.)
Assume that the emissions create a marginal cost to society equal to MECc. Assume that the MEC increases as output and total emissions increase. The MECc line is thus upward sloping. At the market price of Qpc, these external climate costs are equal to the purple vertical line. When these external climate costs are added to private costs, this gives a marginal social cost given by MSC = MPC + MECc. The gives a socially optimal level of output of the product of Q* at a price of P*, with the optimum point of c.
In other words, other things being equal, the free market overproduces products with climate externalities. If the output is to be reduced to the social optimum of Q*, then the government will need to take measures such as those advocated in the Paris Agreement. These could include imposing taxes on products, such as electricity generated by fossil fuels, or on the emissions themselves. Or green alternatives, such as wind power, could be subsidised.
Alternatively, regulations could be used to cap the production of products creating emissions, or caps on the emissions themselves could be imposed. Emissions permits could be issued or auctioned. Only firms in possession of the permits would be allowed to emit and the permits would cap emissions below free-market levels. These permits could be traded under a cap-and-trade scheme, such as the EU’s Emissions Trading Scheme. Again, such schemes are advocated under the Paris Agreement.
COP30 and progress in tackling climate change
The USA is not attending COP30 in Brazil. Nor is the Chinese leader, Xi Jinping. However, there are growing opportunities for translating aims into practical policies for specific sectors, such as energy, transport and carbon-intensive industries. These policies may require some degree of government action – taxes, subsidies or regulation – to internalise climate externalities. But increasingly, green alternatives are becoming economically viable without subsidies or with just initial government funding to ‘crowd in’ private investment, which will then attract further private capital as external economies of scale kick in. Increasingly investors will find profitable opportunities in climate-friendly projects.
At the same time, while the USA is moving away from climate-friendly investment (as least for the term of the Trump Presidency), China is moving in the opposite direction, with massive investment in solar panels, wind turbines, EVs and batteries – investment that is bringing down their cost and thereby encouraging their adoption around the world. Such technologies create huge opportunities for low-income countries to provide affordable energy and to create local jobs, both skilled and unskilled. It also helps them achieve much greater energy security by reducing their reliance on fossil fuel imports
Chinese advances in green technology are also providing a stimulus to other countries to invest in renewable industries to prevent Chinese dominance. The danger, however, of Chinese dominance in the renewable sector in high-income countries is that it may encourage them to impose tariffs on Chinese imports of EVs, solar panels, etc. to protect their own industries.
But despite the growing opportunities for profitable adoption of green technologies without government support, there is still much that governments need to do to encourage the process. COP meetings are an important forum for discussing such policies and holding governments to account for meeting or not meeting their targets.
Articles
- What is COP30 and why does it matter for the climate?
Chatham House, Anna Åberg (5/9/25)
- COP30 in Brazil: What is at stake for global collaboration on climate and nature?
World Economic Forum, Pim Valdre (5/11/25)
- What is COP30 and why does it matter?
CNN, Laura Paddison (11/11/25)
- Why COP 30 in Brazil Matters for a Thriving Economy and a Safe, Livable Planet
Union of Concerned Scientists (UCS),Rachel Cleetus (7/11/25)
- Nationally Determined Contributions: The Action Plans Behind Global Efforts To Fight the Climate Crisis
Center for American Progress (CAP, Kalina Gibson and Courtney Federico (22/9/25)
- New climate pledges only slightly lower dangerous global warming projections
UN Environment Programme, Press Release (4/11/25)
- COP30: Trump and many leaders are skipping it, so does the summit still have a point?
BBC News, Justin Rowlatt (10/11/25)
- Trump dismisses clean energy as ‘a joke.’ But Americans deserve facts, not fear
USA Today, Mark McNees (23/9/25)
- The surprising countries pulling off stunningly fast clean energy transitions
CNN, Ella Nilsen and Samuel Hart (7/11/25)
Could the world’s biggest polluter be its savior against climate change?CNN, Simone McCarthy (17/11/25)
- COP 2025: Outlook and Implications for Investors
RankiaPro, Joanna Piwko, Allegra Ianiri, Marie Lassegnore and Jean-Philippe Desmartin (10/11/25)
Information and Data
Questions
- Summarise the Paris Agreement.
- Summarise the Baku to Belém Roadmap to 1.3T.
- What incentives are there for countries to stick to their NCDs?
- Using a diagram similar to that above, illustrate how the free market will produce a sub-optimal amount of solar power because the marginal social benefit exceeds the marginal private benefit. How might the calculation be changing?
- How might game theory be used to analyse possible international decision making at COP conferences? How might this be affected by the attitudes of the Trump administration?
- Is it in America’s interests to cease investing in green energy and green production methods?
The debate about a minimum price for alcohol continues to be prompted by concerns over high levels of drinking, its effect on public health and public order, and a widespread belief that most of the alcohol that contributes to drunken behaviour is irresponsibly priced and sold. Minimum pricing for alcohol, although considered a radical intervention, is not a new policy. A minimum unit price (MUP) for alcohol was introduced in Scotland in 2018, in Wales in 2020, in the Republic of Ireland in 2022 and looks likely to be introduced in Northern Ireland.
Despite more countries following Scotland’s lead, there are no current plans to consider an application of an MUP in England. However, with recent increases in the MUP in Scotland and the findings of a five-year review in Wales, it would suggest that this policy will continue to be at the forefront of discussions of how to tackle impacts of alcohol consumption.
Reasons and options for intervention
The main goal of introducing a minimum unit price for alcohol is to tackle unwanted consequences from the consumption of alcohol. While many people consume alcoholic drinks safely without any problems, some patterns of alcohol use are associated with significant physical, mental and social harm.
It costs UK society more than £27 billion a year through a combination of health, crime, workplace and social welfare costs. Therefore, some governments in the British Isles have deemed it necessary to intervene in this market to reduce alcohol-related harm and protect the health of those regularly drinking more than the recommended 14 units per week.
Research has shown that making alcohol less affordable can reduce consumption and hence related harms. The World Health Organization considers minimum pricing one of its ‘best buys’ for tackling harmful alcohol use.
There are three main policy options that aim to reduce the consumption of alcohol by making alcohol less affordable. One is to tax alcoholic drinks; the second is to set a minimum price per unit of alcohol; the third is to ban the sale of alcohol drinks below cost price (the level of alcohol duty plus VAT).
The policy option of an MUP has been adopted by Scotland, Wales and the Republic of Ireland; England has opted to use a ban on selling alcohol below the level of alcohol duty plus VAT (since 28 May 2014).
What is a minimum price?
The introduction by the government of a minimum price for a product means that it cannot legally be sold below that price. It can be set in order to achieve certain economic or social objectives that are not currently being achieved at equilibrium in the market. In order for the policy to have an effect, the minimum price must be set above the equilibrium price. This price floor then prevents prices from falling too low and settling back at equilibrium below the MUP.
A common misconception is that introducing a minimum price for alcohol is a form of taxation. However, this is not the case. Implementing an MUP means that any extra money from higher prices goes to the retailers and producers, not to the government.
Why choose a minimum price floor?
The policy has two main objectives. The first is to protect the interests of drinkers who may make poor decisions on their own behalf. This may be from lack of information, social pressures or a disregard for their own long-term health or welfare.
The second objective is to reduce the external costs placed on health services, the police, the criminal justice system, on fellow citizens or employers. There are also longer-term external costs when alcohol abuse impacts on productivity or leads to repeated absences from work.
It is argued that MUP intervention can encourage positive changes in behaviour of both consumers and producers. It can target harmful excessive drinking, while leaving the more moderate drinker relatively unaffected.
A positive impact on consumers is the possible changes in demand. People who previously consumed cheap, and often strong, drinks, such as cheap cider, will find that their marginal private cost of consuming alcohol has increased. Depending on the price elasticity of demand, their consumption will decrease and there will be a reduction in alcohol-related violence and other external costs. A positive impact on producers is that it can encourage drinks manufacturers themselves to reduce the alcohol content of their products and, therefore, limit any increase in price passed on to the consumer.
How it differs in the different parts of the British Isles
While minimum alcohol pricing is in place in several countries, policies differ. In terms of the British Isles, in 2018 Scotland became the first country to introduce a national minimum price for all types of alcohol. Two years later, Wales followed suit. The Republic of Ireland introduced minimum pricing in January 2022, while Northern Ireland has been engaged in consultation on the policy for several years. The following table shows when MUP was introduced and at what rates.
Has the MUP been effective?
Wales has reached the five-year review point since the MUP was introduced. Many of the findings within the Welsh evaluation have strong resonance with those elsewhere, particularly those of the final Scottish evaluation. There have been five main findings:
- Implementation has been smooth. Retailers have largely complied with the law, and enforcement has been effective.
- Certain cheap alcohol products have disappeared. Large bottles of strong cider, for example, are now rare. There have also been shifts in promotions and product availability.
- There are indications that overall alcohol consumption in Wales has declined. While it is difficult to measure directly, purchasing data suggests a reduction.
- Concerns about unintended consequences have not materialised significantly. Predictions of a rise in home brewing, substance switching, shoplifting and cross-border purchasing have not been widely observed.
- Some drinkers have changed their purchasing habits. A minority have switched from cider to wine or spirits as price differences narrowed. Others, particularly those on low incomes, experienced further struggles in financially maintaining their drinking habits.
There was also a study published last year (2024) in the journal Economic Inquiry, looking at the impacts of the policy during lockdown restrictions. The study showed that the introduction of MUP in Wales resulted in a 15% increase in transaction prices and a sharp reduction in the amount of alcohol bought, around 20%, with an overall drop in expenditure per customer compared to England over the same period.
However, it should be noted that the COVID pandemic disrupted drinking habits and the availability of alcohol. In addition, evaluating the overall effects of the policy has been complex with other economic factors, including the cost-of-living crisis, also influencing affordability.
Is it a fair policy?
A counter argument to applying a price intervention on alcohol is that it may have unintended private and external costs. One argument claims that young people could decide to switch to cheaper non-alcoholic drugs instead. Alternatively, they may seek to purchase alcohol on illegal shadow markets.
Critics of the policy argue that it negatively impacts those who consume alcohol responsibly, especially families on average or below-average incomes. The wine and spirits industry tried to lobby against the Scottish government, arguing that it is inconsistent with the operation of the free market and that the intervention creates a barrier to trade. They claim that lower sales of alcoholic drinks will cost jobs in the UK, both in manufacturing and from reduced revenues of corner shops, pubs and other retailers.
There is also an argument that relying solely on an MUP targets the affordability of drinking rather than addressing all aspects of alcohol harm. Therefore, this policy is not necessarily effective in achieving all the government’s goals. Critics argue that this policy should be one component of a more comprehensive strategy delivery, which might include education, restricting the availability of alcohol, banning advertising, increasing alcohol duty, etc.
Conclusion
Although there are currently no plans to implement an MUP in England, there is ongoing pressure for the Government to consider adopting one. In the Autumn of 2024, Lord Darzi carried out an independent investigation of the NHS in England. This investigation into the NHS highlighted the ‘alarming’ death toll in England caused by cheap drink (see link below). This led public health leaders to call for action to increase the price of cheap alcohol in supermarkets and off-licences.
However, the policy itself is not without its critics, especially those citing continued trends in actual numbers of alcohol-related deaths. Therefore, it is suggested that the policy needs to be accompanied by well-funded treatment and support services for people experiencing alcohol-related difficulties. If combined with other policy measures and social support, it has the potential to contribute significantly to reductions in alcohol-related harm.
Despite reservations, overall a minimum price per unit of alcohol is viewed by many as a justified intervention and is well supported by evidence. It has been accepted that a minimum price is required to reduce consumption closer towards the social optimum and in order to bring about change in consumer and producer behaviour. Given the evidence provided from current MUP countries and ongoing discussions of alcohol-related deaths in England, health officials believe a review is almost certain, even though the current government reportedly ruled out minimum unit pricing shortly after winning power.
Articles
Reports
Questions
- Using a supply and demand diagram, discuss the effect of introducing a minimum price per unit of alcohol.
- How is the price elasticity of demand for alcoholic drinks relevant to determining the success of minimum pricing?
- Compare the effects on alcohol consumption of imposing a minimum unit price of alcohol with a ban the sale of alcohol below cost price. What are the revenue implications of the two policies for the government?
- What negative externalities occur as a result in the over consumption of alcohol? How could a socially efficient price for alcohol be determined?
- Could alcohol consumption be described as a ‘de-merit good’? Explain.
- Rather than targeting the price of alcohol, what other policies could the government introduce to tackle over consumption of alcohol?
- What will determine the number of people travelling across borders within the UK (i.e. from Scotland or Wales to England) to buy cheaper alcoholic drinks?
On the day he came to office, President Trump signed a series of executive orders. One of these was to set in motion the process of withdrawing from the UN Paris climate agreement. Section 3(a) of the order reads:
The United States Ambassador to the United Nations shall immediately submit formal written notification of the United States’ withdrawal from the Paris Agreement under the United Nations Framework Convention on Climate Change.
The Paris Agreement is an international treaty on climate change. It was adopted on 12 December 2015 and came into force on 4 November 2016, 30 days after the point was reached when at least 55 countries accounting for at least 55% of global emissions had ratified the treaty.
Currently, all UN countries are signatories to the agreement and only Iran, Libya and Yemen are yet to ratify it. The agreement commits countries to limiting global warming to well under 2°C above pre-industrial levels and preferably to no more than 1.5°C. This would involve reducing greenhouse gas emissions and/or taking carbon absorbing measures.
Since 2020, each country has been required to submit its own emission-reduction targets, known as ‘nationally determined contributions’ (NDCs), and the actions it will take to meet them. Every five years each country must submit a new NDC more ambitious than the last.
Rich countries are expected to provide finance to low-income countries. This is required to help poor countries adopt green technologies and to adapt to the harmful effects of climate change (e.g. through irrigation schemes and flood defences).
Countries set target dates by which emissions would be fully offset by carbon absorption measures (‘net zero’). The UN’s goal is to reach global net zero by 2050. According to the UN Climate Action site:
As of June 2024, 107 countries, responsible for approximately 82 per cent of global greenhouse gas emissions, had adopted net-zero pledges either in law, in a policy document such as an national climate action plan or a long-term strategy, or in an announcement by a high-level government official. More than 9000 companies, over 1000 cities, more than 1000 educational institutions, and over 600 financial institutions have joined the Race to Zero, pledging to take rigorous, immediate action to halve global emissions by 2030.
The Paris Agreement has helped to cut emissions or slow their rate of growth in most countries. Although net zero by 2050 may be unlikely, warming will be less than without the agreement.
The USA and the Paris Agreement
In April 2016 the USA signed the Paris Agreement. As stated above, the Paris Agreement came into effect on 4 November 2016.
President Trump came to office for the first time in January 2017. In June 2017, he signed an executive order in which he announced that the USA would withdraw from the agreement, arguing that it undermined the US economy and put it at a competitive disadvantage. He claimed that global warming is a hoax concocted by China designed to undermine the competitive power of the USA.
However, despite Trump’s intention to withdraw from the agreement, its terms did not allow a country to begin a withdrawal procedure for at least three years after the agreement was ratified (i.e. not before 4 November 2019) and then a year’s notice has to be given. This notice was given on 4 November 2019. In the meantime, the USA had to abide by the terms of the treaty. During this period, US representatives at COP meetings used the opportunity to promote fossil fuels. Withdrawal took place on 1 November 2020, just one day after the presidential election and just over two months before the end of Trump’s first term of office.
On 20 January 2021, his first day in office, President Biden signed an executive order to rejoin the agreement, which took place on 19 February 2021. He committed to cutting total greenhouse gas emissions by at least 50% by 2030. To achieve this, his administration adopted a number of emissions-reducing measures, for example requiring all new passenger vehicles sold after 2035 to be emissions free, giving tax credits for clean electricity generation, providing federal funds for smart agriculture and setting greener appliance and equipment standards.
But, as we have seen, newly elected President Trump for the second time announced that the USA would withdraw from the Paris agreement and would prioritise fossil fuel production, under the mantra, ‘drill, baby, drill’.
The economics of climate change
Climate change is directly caused by market failures. One of the most important of these is that the atmosphere is a common resource: it is not privately owned; it is a global ‘commons’. Individuals and firms use it at a zero price. If the price of any good or service to the user is zero, there is no incentive to economise on its use. Thus for the emitter there are no private costs of using the atmosphere in this way as a ‘dump’ for their emissions and, in a free market, no incentive to reduce the climate costs.
And yet when firms emit greenhouse gases into the atmosphere there are costs to other people. To the extent that they contribute to global warming, part of these costs will be borne by the residents of that country; but a large part will be borne by inhabitants of other countries.
These climate costs are external costs to the firm and are illustrated in the figure. It shows an industry that emits CO2. To keep the analysis simple, assume that it is a perfectly competitive industry with demand and supply given by curves D and S, which are equal to the marginal private benefits (MPB) and marginal private costs (MPC), respectively. There are no externalities on the demand side and hence MPB equals the marginal social cost (MSB). Market equilibrium is at point a, with output at Qpc and price at Ppc. (Click here for a PowerPoint.)
Assume that the emissions create a marginal cost to society equal to MECc. Assume that the MEC increases as output and total emissions increase. The MECc line is thus upward sloping. At the market price of Qpc, these external climate costs are equal to the purple vertical line. When these external climate costs are added to private costs, this gives a marginal social cost given by MSC = MPC + MECc. The gives a socially optimal level of output of the product of Q* at a price of P*, with the optimum point of c.
In other words, other things being equal, the free market overproduces products with climate externalities. If the output is to be reduced to the social optimum of Q*, then the government will need to take measures such as those advocated in the Paris Agreement. These could include imposing taxes on products, such as electricity generated by fossil fuels, or on the emissions themselves. Or green alternatives, such as wind power, could be subsidised.
Alternatively, regulations could be used to cap the production of products creating emissions, or caps on the emissions themselves could be imposed. Emissions permits could be issued or auctioned. Only firms in possession of the permits would be allowed to emit and the permits would cap emissions below free-market levels. These permits could be traded under a cap-and-trade scheme, such as the EU’s Emissions Trading Scheme. Again, such schemes are advocated under the Paris Agreement.
Effect of the USA’s withdrawal from the Paris Agreement
Withdrawal from the Paris Agreement and promoting fossil fuels will increase US emissions. Scientific consensus is that this will have a negative effect on climate change. Only part of these climate costs will be borne by the USA, although the severity of recent fires in California, fanned by strong Santa Ana winds, and more violent hurricanes are two examples of costs of climate change to the USA itself.
A bigger worry is whether the USA’s withdrawal will encourage other countries, such as Argentina, to do likewise. Then the climate costs of US withdrawal will be greater.
But all is not bad news. The transition to green energy is well advanced and the costs of solar and wind power are decreasing. Global investment in clean energy has increased by 60% since 2015. China is investing heavily in renewable energy technology, which is giving it a significant trade advantage. The EU has taken significant actions to promote green energy and technology. Similarly, industrial processes that economise on emissions are developing apace and it is becoming increasingly profitable for private companies to make climate-friendly investments without subsidies. In the USA itself, many Democratic states and local governments, and even some Republican ones, will continue to adopt climate-friendly policies.
In this environment, the Trump administration does not want to fall behind in the development of new technologies and markets. And with Elon Musk having a significant influence on Donald Trump, the USA’s investment in EVs and battery technology is likely to continue. This will help to reduce the price of green energy and transport.
Videos
Articles
- Trump vows to leave Paris climate agreement and ‘drill, baby, drill’
BBC News, Matt McGrath (20/1/25)
- What is the Paris climate agreement and why has Trump withdrawn?
BBC News, Esme Stallard and Mark Poynting (21/1/25)
- Six Trump executive orders to watch
BBC News (21/1/25)
- The real message behind Trump’s withdrawal of US from the Paris climate agreement
Sky News, Tom Clarke (21/1/25)
- Trump signs order to withdraw US from Paris climate agreement for second time
The Guardian, Dharna Noor (20/1/25)
- Explained: how Trump’s day one orders reveal a White House for big oi
The Guardian, Oliver Milman and Dharna Noor (22/1/25)
- Donald Trump can’t stop global climate action. If we stick together, it’s the US that will lose out
The Guardian, Bill Hare (6/11/24)
Trump to pull US from Paris climate agreement: What could this mean for the environment?ITV News, Martin Stew (21/1/25)
- 10 reasons why US president-elect Donald Trump can’t derail global climate action
The Conversation, Wesley Morgan and Ben Newell (8/11/24)
- Trump has rejected the Paris agreement again, but game theory shows how other countries can still lead by example
The Conversation, Renaud Foucart (27/1/25)
Information
Questions
- Summarise the Paris Agreement.
- Using a diagram similar to that above, illustrate how the free market will produce a sub-optimal amount of solar power because the marginal social benefit exceeds the marginal private benefit.
- How might game theory be used to analyse possible international decision making in the context of US climate policy?
- Is it in America’s interests to cease investing in green energy and green production methods?
- Go through each of the reasons (not specific to Australia) given in The Conversation article linked above why ‘Donald Trump can’t derail global climate action’. To what extent do you agree with each one?
The Competition and Markets Authority (CMA) is proposing to launch a formal Market Investigation into anti-competitive practices in the UK’s £2bn veterinary industry (for pets rather than farm animals or horses). This follows a preliminary investigation which received 56 000 responses from pet owners and vet professionals. These responses reported huge rises in bills for treatment and medicines and corresponding rises in the cost of pet insurance.
At the same time there has been a large increase in concentration in the industry. In 2013, independent vet practices accounted for 89% of the market; today, they account for only around 40%. Over the past 10 years, some 1500 of the UK’s 5000 vet practices had been acquired by six of the largest corporate groups. In many parts of the country, competition is weak; in others, it is non-existent, with just one of these large companies having a monopoly of veterinary services.
This market power has given rise to a number of issues. The CMA identifies the following:
- Of those practices checked, over 80% had no pricing information online, even for the most basic services. This makes is hard for pet owners to make decisions on treatment.
- Pet owners potentially overpay for medicines, many of which can be bought online or over the counter in pharmacies at much lower prices, with the pet owners merely needing to know the correct dosage. When medicines require a prescription, often it is not made clear to the owners that they can take a prescription elsewhere, and owners end up paying high prices to buy medicines directly from the vet practice.
- Even when there are several vet practices in a local area, they are often owned by the same company and hence there is no price competition. The corporate group often retains the original independent name when it acquires the practice and thus is is not clear to pet owners that ownership has changed. They may think there is local competition when there is not.
Often the corporate group provides the out-of-hours service, which tends to charge very high prices for emergency services. If there is initially an independent out-of-hours service provider, it may be driven out of business by the corporate owner of day-time services only referring pet owners to its own out-of-hours service.- The corporate owners may similarly provide other services, such as specialist referral centres, diagnostic labs, animal hospitals and crematoria. By referring pets only to those services owned by itself, this crowds out independents and provides a barrier to the entry of new independents into these parts of the industry.
- Large corporate groups have the incentive to act in ways which may further reduce competition and choice and drive up their profits. They may, for example, invest in advanced equipment, allowing them to provide more sophisticated but high-cost treatment. Simpler, lower-cost treatments may not be offered to pet owners.
- The higher prices in the industry have led to large rises in the cost of pet insurance. These higher insurance costs are made worse by vets steering owners with pet insurance to choosing more expensive treatments for their pets than those without insurance. The Association of British Insurers notes that there has been a large rise in claims attributable to an increasing provision of higher-cost treatments.
- The industry suffers from acute staff shortages, which cuts down on the availability of services and allows practices to push up prices.
- Regulation by the Royal College of Veterinary Surgeons (RCVS) is weak in the area of competition and pricing.
The CMA’s formal investigation will examine the structure of the veterinary industry and the behaviour of the firms in the industry. As the CMA states:
In a well-functioning market, we would expect a range of suppliers to be able to inform consumers of their services and, in turn, consumers would act on the information they receive.
Market failures in the veterinary industry
The CMA’s concerns suggest that the market is not sufficiently competitive, with vet companies holding significant market power. This leads to higher prices for a range of vet services. However, the CMA’s analysis suggests that market failures in the industry extend beyond the simple question of market power and lack of competition.
A crucial market failure is asymmetry of information. The veterinary companies have much better information than pet owners. This is a classic principal–agent problem. The agent, in this case the vet (or vet company), has much better information than the principal, in this case the pet owner. This information can be used to the interests of the vet company, with pet owners being persuaded to purchase more extensive and expensive treatments than they might otherwise choose if they were better informed.
The principal–agent problem also arises in the context of the dependant nature of pets. They are the ones receiving the treatment and, in this context, are the principals. Their owners are the ones acquiring the treatment for them and hence are the pets’ agents. The question is whether the owners will always do the best thing for their pets. This raises philosophical questions of animal rights and whether owners should be required to protect the interests of their pets.
Another information issue is the short-term perspective of many pet owners. They may purchase a young and healthy pet and assume that it will remain so. However, as the pet gets older, it is likely to face increasing health issues, with correspondingly increasing vet bills. But many owners do not consider such future bills when they purchase the pet. They suffer from what behavioural economists call ‘irrational exuberance’. Such exuberance may also occur when the owner of a sick pet is offered expensive treatment. They may over-optimistically assume that the treatment will be totally successful and that their pet will not need further treatment.
Vets cite another information asymmetry. This concerns the costs they face in providing treatment. Many owners are unaware of these costs – costs that include rent, business rates, heating and lighting, staff costs, equipment costs, consumables (such as syringes, dressings, surgical gowns, antiseptic and gloves), VAT, and so on. Many of these costs have risen substantially in recent months and are reflected in the prices pet owners are charged. With people experiencing free health care for themselves from the NHS (or other national provider), this may make them feel that the price of pet health care is excessive.
Then there is the issue of inequality. Pets provide great benefits to many owners and contribute to owners’ well-being. If people on low incomes cannot afford high vet bills, they may either have to forgo having a pet, with the benefits it brings, or incur high vet bills that they ill afford or simply go without treatment for their pets.
Finally, there are the external costs that arise when people abandon their pets with various health conditions. This has been a growing problem, with many people buying pets during lockdown when they worked from home, only to abandon them later when they have had to go back to the office or other workplace. The costs of treating or putting down such pets are born by charities or local authorities.
The CMA is consulting on its proposal to begin a formal Market Investigation. This closes on 11 April. If, in the light of its consultation, the Market Investigation goes ahead, the CMA will later report on its findings and may require the veterinary industry to adopt various measures. These could require vet groups to provide better information to owners, including what lower-cost treatments are available. But given the oligopolistic nature of the industry, it is unlikely to lead to significant reductions in vets bills.
Articles
- UK competition watchdog plans probe into veterinary market
Financial Times, Suzi Ring and Oliver Ralph (12/3/24)
- Vet prices: Investigation over concerns pet owners are being overcharged
Sky News (12/3/24)
- UK watchdog plans formal investigation into vet pricing
The Guardian, Kalyeena Makortoff (12/3/24)
- ‘Eye-watering’ vet bills at chain-owned surgeries prompt UK watchdog review
The Guardian, Kalyeena Makortoff (7/9/23)
- Warning pet owners could be overpaying for medicine
BBC News, Lora Jones & Jim Connolly (12/3/24)
- I own a vet practice, owners complain about the spiralling costs of treatments, but I only make 5 -10% profit – here’s our expenditure breakdown
Mail Online, Alanah Khosla (14/3/24)
- Vets bills around the world: As big-name veterinary practices come under pressure for charging pet owners ‘eyewatering’ care costs, how do fees in Britain compare to other countries?
Mail Online, Rory Tingle, Dan Grennan and Katherine Lawton (13/3/24)
CMA documents
Questions
- How would you establish whether there is an abuse of market power in the veterinary industry?
- Explain what is meant by the principal–agent problem. Give some other examples both in economic and non-economic relationships.
- What market advantages do large vet companies have over independent vet practices?
- How might pet insurance lead to (a) adverse selection; (b) moral hazard? Explain. How might (i) insurance companies and (ii) vets help to tackle adverse selection and moral hazard?
- Find out what powers the CMA has to enforce its rulings.
- Search for vet prices and compare the prices charged by at least three vet practices. How would you account for the differences or similarities in prices?
Climate change is not just an environmental challenge: its socioeconomic impacts are profound and far-reaching, touching every aspect of society. From agriculture to health, from urban infrastructure to coastal communities, the effects of climate change are evident and escalating.
The far-reaching effects
In agriculture, rising temperatures, more intense and frequent heatwaves and changing precipitation patterns pose significant threats to food security.1, 2 Crop yields decline as extreme weather events become more frequent and unpredictable, leading to increased food prices and economic instability. Smallholder farmers, who often lack the resources to adapt, are particularly vulnerable, exacerbating rural poverty and food insecurity.3
Coastal communities face the dual threats of sea-level rise and more intense storms.4 Erosion and inundation damage homes, infrastructure and livelihoods, displacing populations and disrupting local economies. The loss of coastal ecosystems further compounds these challenges, reducing natural defences against storm surges and exacerbating the impacts of climate-related disasters.
Health systems strain under the burden of climate-change-induced heatwaves, air pollution and the spread of vector-borne diseases.5, 6 Heat-related illnesses increase as temperatures rise, particularly affecting vulnerable populations such as the elderly and outdoor workers. Air pollution exacerbates respiratory conditions, leading to higher healthcare costs and decreased productivity. Vector-borne diseases, such as malaria and dengue fever, expand into new regions, placing additional strain on already overburdened health systems.
Displacement due to climate-related disasters amplifies social inequalities and challenges urban planning and infrastructure.7 Vulnerable communities, often located in low-lying areas or informal settlements, bear the brunt of climate impacts, facing the loss of homes, livelihoods and community cohesion. Inadequate housing and infrastructure increase the risks associated with extreme weather events, perpetuating cycles of poverty and vulnerability.
Furthermore, climate change exacerbates existing socioeconomic disparities, disproportionately affecting marginalised and vulnerable populations. Indigenous communities, women, children and people living in poverty are often the hardest hit, lacking access to resources, information, and adaptive capacity.8
Policy responses
Addressing the socioeconomic impacts of climate change requires co-ordinated action across sectors and scales. Policy interventions, such as investment in climate-resilient infrastructure and the promotion of sustainable agriculture practices, are essential for building resilience and reducing vulnerability. Community-led initiatives that prioritise local knowledge and empower marginalised groups are also critical for fostering adaptive capacity and promoting social equity.
To address these challenges, projects like CROSSEU, the new €5 million Horizon Europe project (that I have the pleasure to be part of), play a crucial role in enhancing our understanding of these impacts and developing actionable strategies for resilience and adaptation. One of the key contributions of CROSSEU lies in its development of a Decision Support System (DSS) that integrates tools, measures, and policy options to address these risks in a cross-sectoral and cross-regional perspective. This DSS will support (and hopefully improve) decision-making processes at various levels, from local to EU-wide, and facilitate the adoption of evidence-based policies and measures to enhance resilience and mitigate the impacts of climate change.
Would you like to know more about CROSSEU? Follow our journey and be informed of our publications and events in our new webpage: https://crosseu.eu/9
Articles/References
- Global food security under climate change
Proceedings of the National Academy of Sciences, Josef Schmidhuber and Francesco N Tubiello (11/12/2007)
- Reducing risks to food security from climate change
Global Food Security, Bruce M Campbell et al. (2016: 11, pp 34–43)
- The value-add of tailored seasonal forecast information for industry decision making
Climate, Clare Mary Goodess et al (16/10/2022)
- Assessing climate change impacts, sea level rise and storm surge risk in port cities: a case study on Copenhagen
Climatic change, Stéphane Hallegatte, Nicola Ranger, Olivier Mestre, Patrice Dumas, Jan Corfee-Morlot, Celine Herweijer and Robert Muir Wood (7/12/2010)
- Health risks of climate change: An assessment of uncertainties and its implications for adaptation policies
Environmental Health, J Arjan Wardekker, Arie de Jong, Leendert van Bree, Wim C Turkenburg and Jeroen P van der Sluijs (19/9/2012)
- Climate Change and Temperature-related Mortality: Implications for Health-related Climate Policy
Biomedical and Environmental Sciences, Tong Shi Lu, Jorn Olsen and Patrick L Kinney (2021: 34(5) pp 379–86 )
- Climate Change, Inequality, and Human Migration
IZA Discussion Paper No. 12623, Michał Burzyński, Christoph Deuster, Frédéric Docquier and Jaime de Melo (23/9/2019)
- The trap of climate change-induced “natural” disasters and inequality
Global Environmental Change, Federica Cappelli, Valeria Costantini and Davide Consoli (30/7/2021)
- Cross-sectoral Framework for Socio-Economic Resilience to Climate Change and Extreme Events in Europe
UEA Research Project, Nicholas Vasilakos, Katie Jenkins and Rachel Warren
Questions
- How do the socioeconomic impacts of climate change differ between rural and urban communities? What factors contribute to these disparities, and how can policies address them effectively?
- In what ways do vulnerable populations, such as indigenous communities and those living in poverty, bear the brunt of climate change impacts? How can we ensure that climate adaptation strategies prioritise their needs and promote social equity?
- The blog mentions the importance of community-led initiatives in building resilience to climate change. What examples of successful community-based adaptation projects can you identify, and what lessons can be learned from their implementation?
- How can governments and organisations collaborate to address the socioeconomic impacts of climate change while also promoting economic growth and development? What role do cross-sectoral partnerships play in building resilience and fostering sustainable practices?