Carbon prices head higher as emissions targets start to bite

There was some important information this week from over 10,000 power generators, steel, cement and aluminum manufacturers.  The effectiveness of carbon trading in creating the right incentives for power users to cut emissions depends on there being a scarcity of carbon permits reflected in a price high enough (and sufficiently predictable in the medium term) for investment in improved fuel efficiency to be commercially viable. A couple of years ago the market price of carbon collapsed when it became clear that the EU had been overly generous in handing out free gifts of carbon permits. The criticisms were valid and the long term future of the carbon trading scheme was called into question.

But the signs for the second phase of this innovative market mechanism look more promising.

OCR 2888 - June Case Study - Broad Themes

This is the first in a series of blog posts relating to the OCR A2 Economics Case Study, Economics in a European Context. This summer the pre-release case study materials focus on the EU automotive industry and many of the economic and environmental issues that link to this important industrial sector. I have been working on our toolkit for this paper (due out in a few days) and below I have tried to capture some of the broad themes that I feel are covered by the case study materials. Please do add your own ideas through the blog!

Dioxin contamination and illegal dumping of waste

The Independent’s front page this morning offers a classic tale of externalities. For years residents of Campania have been found to be less healthy than residents in the rest of Italy. Mortality rates, particularly from some forms of cancer, are higher in the areas around Naples where the rubbish crisis is at its most severe. Now allegations are surfacing that the illegal dumping of waste in an area where waste management is under the control of the Mafia has caused excessive levels of dioxins to be found in Buffalo milk, one of the prime ingredients of mozzarella cheese beloved of pizza lovers around the world.

“The topping on a billion pizzas, the magic ingredient in a million salads, is at the centre of a major food scare involving pollution, corruption, the Mafia and southern Italy’s remarkable crisis in waste management.” In a separate piece, the Indy reports that “A recent report by Italy’s small business group estimated that the Mafia is the biggest business in Italy, with organised crime netting Mob bosses the equivalent of more than £63bn a year, or 7 per cent of the country’s gross domestic product.”

BBC news: Toxin scare hits mozzarella sales
New York Times: Italy’s Mozzarella Makers Fight Dioxin Scare

The London Pollution Charge

The London Congestion Charge is to tax more highly polluting vehicles more in a bid to reduce pollution. From October 2008, drivers of many sports cars, MPVs and 4x4s will pay £25 per day rather than the current level of £8. In addition, the charge will be abolished for the lowest polluting vehicles.

The Congestion Charge is generally regarded as a success, and environmental groups are applauding the new structured charge as an effective way of shifting drivers of ‘gas guzzlers’ into cleaner cars or onto public transport. The CC is a hypothecated tax in that the revenue it raises is, in theory, used to fund improvements to public transport.

What, exactly, does the CC aim to achieve? It is called a congestion charge, but the new structured tax appears to be more focused on reducing CO2 emissions. So should it really be called the Pollution Charge?