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  • Anforme Are Government Attempts to Reduce the Impact of Climate Change Beneficial or Harmful to UK firms?

Anforme Are Government Attempts to Reduce the Impact of Climate Change Beneficial or Harmful to UK firms?

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Sheila Pugh, economics teacher at Ipswich School, discusses how policies to reduce carbon emissions impact on producers and consumers.

Summary of Key Points:

  • Global warming is a market failure: CO2 and other greenhouse gas emissions are an external cost to future generations.
  • The key government policy for reducing global warming involves putting a price on CO2 emissions. This raises the cost of energy production either directly, or indirectly by causing firms to switch to more expensive forms of energy such as wind power.
  • Energy producers,mainly electricity companies,will suffer lower profits as a result. But given a low PED for electricity, much of their higher costs will be passed onto consumers.
  • Firms which use energy intensively, such as cement and iron and steel will also have lower profits.
  • Demand will increase for carbon-saving technology and goods and services that use little energy. Firms producing these outputs will see a rise in profits.
  • Although the relative price changes produced by climate change policies result in winners and losers, there will be a net cost to the current generation. This is because the fundamental change needed to transform economies from high to low carbon ones is an increase in the cost of carbon.

This article featured in ET Volume 18 Issue 3.

Sheila Pugh, economics teacher at Ipswich School, discusses how policies to reduce carbon emissions impact on producers and consumers.

Summary of Key Points:

  • Global warming is a market failure: CO2 and other greenhouse gas emissions are an external cost to future generations.
  • The key government policy for reducing global warming involves putting a price on CO2 emissions. This raises the cost of energy production either directly, or indirectly by causing firms to switch to more expensive forms of energy such as wind power.
  • Energy producers,mainly electricity companies,will suffer lower profits as a result. But given a low PED for electricity, much of their higher costs will be passed onto consumers.
  • Firms which use energy intensively, such as cement and iron and steel will also have lower profits.
  • Demand will increase for carbon-saving technology and goods and services that use little energy. Firms producing these outputs will see a rise in profits.
  • Although the relative price changes produced by climate change policies result in winners and losers, there will be a net cost to the current generation. This is because the fundamental change needed to transform economies from high to low carbon ones is an increase in the cost of carbon.

This article featured in ET Volume 18 Issue 3.

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