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?
A significant illegal trade in ‘e-waste’ has developed with thousands of discarded computers arriving every day in the ports of West Africa. Once there, children are often used to dismantle them and extract metals . However, this has resulted in huge toxic dumps and serious health problems for resident in the surrounding area.
Breeding toxins from dead PCs Guardian (6/5/08)
Questions
| 1. |
Identify the principal external costs resulting from this illegal trade in e-waste. |
| 2. |
Using diagrams as appropriate, show the impact of this market failure on the market for new computers. |
| 3. |
Evaluate two policies that the international community could adopt to reduce this illegal trade in e-waste. |
One of the key Budget measures was a change in the car tax regime. The Chancellor, Alistair Darling, introduced a new banded system annual vehicle excise duty (VED) based on the level of emissions of the vehicle. The cars with the lowest levels of emissions will be exempt from VED, but at the other end of the spectrum, the highest polluting vehicles will face an annual VED of around £440. However, this will be substantially higher in the year of purchase of the vehicle and this so-called ‘showroom tax’ will raise the tax level to £950 in the first year of purchase.
Gas guzzlers hit with higher taxes Guardian (12/03/08)
New taxes on gas-guzzlers will raise an extra £1.2bn Guardian (13/03/08)
Spared at the pumps – but hit in the showroom Guardian (16/03/08)
Q&A: Showroom tax BBC News Online (12/03/08)
Gas guzzlers set to face £950 tax BBC News Online (12/03/08)
Questions
| 1. |
Explain how the highest polluting vehicles affect the socially optimal equilibrium in the market for car travel. |
| 2. |
Using supply and demand diagrams as appropriate, illustrate the likely impact of the new car tax regime in 2009-10 on the equilibrium in the market for car travel. What is the significance of the concepts of price elasticity of demand and consumer surplus in your analysis? |
| 3. |
Discuss the likely effectiveness of the new banded car tax regime at reducing the average level of emissions from cars. Would raising the tax on petrol and diesel be a more efficient method of achieving the same goal? |
Cement may be quietly emerging as one of the biggest obstacles to lowering carbon emissions to reduce the extent of global warming. The cement industry rarely features in media analysis of the ‘worst polluters’, but in fact the industry is responsible, because of the high energy requirements of manufacture, for more than 5% of carbon dioxide emissions. A building boom globally has fuelled demand for the material. Concrete is the second most used product on the planet, after water, so what can be done to reduce the impact of the industry on the environment?
The unheralded polluter: cement industry comes clean on its impact Guardian (12/10/07)
Questions
| 1. |
With reference to the article, identify the main external costs resulting from the production of cement. |
| 2. |
Discuss the view expressed by Dimitri Paplexopoulos, managing director of Titan Cement that “.. [c]ement is needed to satisfy basic human needs, and there is no obvious substitute, so there is a trade-off between development and sustainability“. |
| 3. |
Discuss policies that governments could adopt to try to move the market for cement towards a more socially optimal level of production. |