Entries Tagged 'environment' ↓

Readers Question: “the only viable solution to the problem of global warming is an international agreement that sets a ceiling to the world’s production of carbon emissions, by allocating a quota to each contry. The sum of the quotas being set equal to the agreed global maximum. countries should then be permitted to buy and sell their quotas”

In theory this scheme can provide a market based response to the problem of global warming.

• It would require countries to agree on a global maximum of carbon emissions. This level would presumably be less than current and would provide the necessary target to reduce emissions and help prevent global warming.
  If countries are given a quota, they would have an incentive to reduce carbon emissions. If they can pollute less than their quota they will be able to sell their quotas to other countries; if they pollute more then they will have the cost of buying more quotas.
• This fiscal incentive should encourage the development of technology which leads to more efficient engines and reduces carbon emissions.
• In theory it is also socially efficient. i.e. a firm can pollute more if it feels it is worth the cost of buying more carbon permits.

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I am supposed to make economics correlated with environmental issues.

How do we avoid environmental damage in an expanding economy?

It is not easy because alot of environmental damage occurs as a result of negative externalities. In other words the environmental damage from producing a good, driving a car primarily affects other people. Therefore, free markets are not efficient at dealing with environmental externalities. As economists we also need to consider the impact on the wider economy.

This essay gives some background: Can Economics Deal with global Warming? 

To Prevent Environmental Damage we need to:

1. Internalise Externalities

We need people to pay the social cost of driving, producing goods. Suppose the cost of driving a car is £1 per 10 miles. The social cost may be £3.50 because of the additional pollution externalities. Therefore, the governmnet need to place a tax of £2.50 on driving so that people pay the true social cost and reduce consumption of goods which cause pollution. The revenue can be used to offset the negative effects of pollution. Continue reading →

I was interested to hear that Marks and Spencers will be charging for plastic bags. The idea could be a clever marketing ploy. Most M&S customers have quite an inelastic demand. It is the kind of customer who is quite happy to pay £3 for a ready made meal. If you ready to pay 50% extra for food, presumably you won’t mind paying 5p for a carrier bag. Although, it is only a relatively small gesture, it may boost the image of M&S as a ‘green retailer’ this boost to PR is probably more valuable than the very minor irritation of having to pay 5p per bag.

It follows a trail in 50 M&S stores where useage fell by 70% after charging for them.

From an economic point of view this scheme should help increase allocative efficiency. Plastic bags do have a cost, not just to make, but to the environment. If they are free they encourage overconsumption and social inefficiency

I’m sure other stores like Tesco will be watching the experiment with interest. If it goes down well, other stores who are generally more price competitive, may consider it as well.

It is estimated the UK gives out 13 billion plastic bags each year.

Should we tax plastic bags 

M&S charge for plastic bags 

Although, the government has tried for several months to avoid this option, Alastair Darling admitted that the government had decided to nationalise the beleaguered bank Northern Rock. It means the government is responsible for over £100m of mortgages and savings.

What Nationalisation Means

1. Shareholders are likely to get very little in compensation. They have threatened to sue the government
2. If there are more mortgage defaults and the Northern Rock lose more money the taxpayer will be responsible for the losses. If however, the Banks does well and doesn’t default, the Government can benefit from the profits of the Bank.
3. The government hope that if financial conditions improve, in a couple of years they will be able to sell it for a much better price. At the moment, they feel that the private offers from Virgin don’t offer sufficient value for taxpayers.
4. The Bank will be run at arms distance, with a commercial attitude predominant. In the past, nationalised industries often were run for political reasons and heavy intervention by the government.

Some people argue that the nationalisation of the Bank shows the economic incompetence of the government. But, I don’t think it does. The fault lies with the poor management of the Bank and the US subprime crisis. I don’t see what else the government could have done. I don’t have much sympathy for a legal challenge by shareholders. If it had not been for the government the Bank would have collapsed and they would have been left with nothing. Buying shares is risky.
See argument for Nationalisation

The interesting feature of teaching and studying economics is that the syllabus evolves over time. For example, there was a time when the crucial issue in economics was the debate between Monetarists and Keynesians or the debate between privatisation and state ownership. However, looking into the future these debates will become increasingly peripheral as people look to more relavant issues, such as the environment.

A key issue for economics will be the impact of economic activity on the environment. Is growth compatible with environmental sustainability? How relevant is neo classical theory of the firm given that it ignores questions of environmental sustainability.

In the past Keynesians and Monetarists, Socialists and Free market economics would disagree about the best way to increase and distribute output. But, now the issue could be completely different. Future questions in economics could involve: Should we try to increase growth at all? What should the role of the government be in avoiding environmental catastrophe?

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See: Economics of Global Warming 

This data from the National Statistics online shows that global warming has been accelerating in the past 7 years.

Note 2006 and 2007 were also record hot years, with 2007 being the warmest on record.

The highest temperature on record was in 2003, when the thermometer reached 38.5 degrees.

The Intergovernmental Panel on Climate Change (IPCC) said that most of the temperature increases can be attribute to man made activities, like burning of fossil fuels.

Who knows what will happen in the future, but some predictions for global warming suggest temperatures could rise by 2-3 degrees having a significant impact on the UK economy and UK society.

See also: Economics of Global Warming