Tag: negative externalities

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

  1. Why is climate change an example of market failure?
  2. Apart from imposing limits on emissions, what other interventionist policies could be used? What are the advantages and disadvantages of each of them?
  3. 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!
  4. Why is climate change presenting a problem for insurance companies? Can it be overcome?
  5. Why is finance such an issue between developed and developing countries in relation to tackling climate change?
  6. What is the likely impact of climate changing policies on the labour market? Will we be able to adapt in the current economic crisis?

2008 may yet come to be seen as the year that marks the death of the single-use plastic bag. Many countries around the world, including China, have banned their use and February 2008 has seen Marks and Spencer announcing a 5p charge per plastic bag in an attempt to reduce their usage. Even government departments have faced criticism over their use as promotional tools. For more details on plastic bag bans and policies relating to limiting their usage, see our 2007/8 podcast on The economics of plastic bags elsewhere on the site.

M&S hopes to cut plastic bag use with 5p levy Guardian (28/2/08)
Brown may legislate against free plastic bags Guardian (29/2/08)
Q&A: Plastic bags Guardian (28/2/08)
M&S to charge 5p for carrier bags BBC News Online (28/2/08)
Brown threatens supermarkets over plastic bag reduction Times Online (29/2/08)
Government accused over plastic bag waste Guardian (29/2/08)
Agency scraps use of plastic bags for Whitehall promotions Guardian (1/3/08)
Plastic bag bans around the world BBC News Online (28/2/08)

Videos
M&S to charge for carrier bags BBC News Online (February 2008)
M&S boss on plastic bags BBC News Online (February 2008)
M&S to start charging for plastic bags BBC News Online (February 2008)

Questions

1. What are the social costs and benefits resulting from the use of single-use plastic
bags?
2. Using diagrams as appropriate, show how the equilibrium price and quantity of plastic bags differs from the social optimum.
3. Evaluate two possible policies that the government could use to reduce the use of plastic bags.

In a surprise move, the Tories have announced plans to tax air travel as part of their environmental policy. It was no surprise to hear the airlines criticise this, but disquiet about this policy has been expressed in traditional Tory circles and it amounts to a significant departure from the past for the party. Are they just flying a kite, or is this a serious policy initiative?

Tories reveal plans for green tax hike on air travel Guardian (11/3/07)
Tory plan for sky-high flight taxes Scotsman (11/3/07)
Airlines shoot down Tory ‘tax on fun’ Telegraph (12/3/07)
Green tax won’t help the planet or the Tories Telegraph (11/3/07)
Tories plan green tax on flights BBC News Online (11/3/07)

Questions

1. Why might a free market in air travel not result in an optimal number of flights.
2. Discuss the likely effectiveness of the tax on flying for reducing the demand for air travel. (You should consider the likely value of the price elasticity of demand in your answer.)
3. With the use of appropriate diagrams, assess the likely impact of the tax on flying on the equilibrium level of price and output in the market for air travel.

Did you buy red roses for Valentine’s Day? If so – where did they come from? Africa or Europe? You may have taken a conscious environmental decision to buy from European sources as the flowers do not have to travel so far and therefore involve fewer air miles, but according to International Development Secretary, Hilary Benn, this may be mistaken and it may be ‘greener’ to buy red from Africa.

Buy African flowers – UK Minister BBC News Online (13/2/07)
Buy African flowers for Valentine’s Day, minister says Guardian (13/2/07)

Questions

1. Compare and contrast the social costs and social benefits (including both private and external costs) of buying red roses produced in Europe and those produced in Africa.
2. Assess which are the most environmentally beneficial presents to give on Valentine’s Day. Give reasons to justify your answer.
3. Evaluate two policy options available to the government to reduce the environmental impact of Valentine’s Day.