Depiction of The Economics of Climate Change
Pete Reynolds

The Economics of Climate Change

Climate change is powering the demand for sustainable growth around the world. The desire to protect our planet is transforming industries, and having a lasting impact on the way we live and work together.

Governments and businesses have joined a global movement to reach net zero by 2050. Policy, finance and regulation are all under the microscope when it comes to facilitating this transformation. Progress is being made, but the call from those driving change is for faster, more impactful, more meaningful action.

By bringing clarity to the trade-offs, incentives and behaviours that are critical to a low-carbon future, economics and finance can provide pathways for how, together, we can bring about a sustainable transition.

“Economics is the study of how to allocate scarce resources to meet unlimited human wants. It provides us with a toolkit to support the agents and innovations that are delivering decarbonisation.”

Sahar Shamsi

The Economics of Climate Change 26 posts

Articles
Depiction of How do policymakers make the climate transition just?
11 minute read

How do policymakers make the climate transition just?

Many different organisations, including the European Commission, the United Nations and the International Labour Organization (ILO), have expressed a desire to ensure that decarbonisation involves a ‘just transition’. The organisations have often focused on the ‘workers’ rights’ element of the transition, without giving other aspects of a just transition the same level of consideration. In this article, we identify these other aspects and, in particular, we explain why current methods of funding decarbonisation are often ‘regressive’ rather than ‘progressive’. Read More

Articles
Depiction of When to give the green light to green agreements
16 minute read

When to give the green light to green agreements

Should companies be allowed to cooperate—or ‘collude’—on socially beneficial environmental behaviour? Do companies even have the incentive to cooperate on socially beneficial behaviour? In this article, we reconcile apparently divergent views concerning the law and economics of the value of sustainability agreements, by illustrating how the presence of sustainability spillovers between firms can generate both socially and privately beneficial cooperation. Read More

Articles
Depiction of New game, new rules: the draft guidelines for ‘green’ state aid measures
8 minute read

New game, new rules: the draft guidelines for ‘green’ state aid measures

On 7 June, the European Commission published its draft climate, energy and environmental aid guidelines (CEEAG). More comprehensive than the previous version, these guidelines cover new technologies (such as hydrogen) and state aid for the phasing out of coal. We explore the role of economic and financial analysis in assessing the compatibility of ‘green’ aid measures under the guidelines. Read More

Articles
Depiction of Ofwat and future price reviews: a stake in the ground
10 minute read

Ofwat and future price reviews: a stake in the ground

In May 2021, Ofwat, the economic regulator of the water industry in England and Wales, set out its vision for the next price review (PR24). Key themes are long-term planning, resilience, how cost assessment is undertaken, eliciting customer preferences, outcome incentives, capital structure, and financial resilience. Ofwat has put a stake in the ground. What are the key issues, and what risks do the proposals pose for the sector? Read More

Articles
Depiction of Promoting the green transition: the EU’s Recovery and Resilience Facility
11 minute read

Promoting the green transition: the EU’s Recovery and Resilience Facility

Over the next five years, significant funding will be made available through the EU’s Recovery and Resilience Facility (RRF) to support member states’ recovery from the COVID-19 crisis. A large part of this funding will be allocated to the ‘green transition’, supporting the EU’s goal to reach net-zero emissions by 2050. We take a look at some of the investments, and the role of economic and financial analysis in ensuring that they are in line with state aid rules. Read More

Articles
Depiction of Ofwat: ambitions for PR24+
1 minute read

Ofwat: ambitions for PR24+

On 27 May, Ofwat published ‘PR24 and Beyond: Creating tomorrow, together’, setting out its initial views on the framework for the next price review (PR24) and future price reviews. Ofwat’s report contains higher-level ideas with an emphasis on creating value. Ofwat’s report is thorough and stands at around 130… Read More

Articles
Depiction of ‘Great’ British Railways?
3 minute read

‘Great’ British Railways?

On 20 May, the UK government published the Williams–Shapps Plan for Rail, which proposes the creation of a new rail body, ‘Great British Railways’. Katie-Lee English, Oxera Senior Consultant and former Head of Rail at HM Treasury, offers some initial thoughts on the proposals in the Report. At long… Read More

Articles
Depiction of Trade-offs for take-off: domestic aviation in a post-pandemic world
6 minute read

Trade-offs for take-off: domestic aviation in a post-pandemic world

Several European governments have provided support to their national airlines and airports amid the COVID-19 pandemic. At the same time, they have committed to a green recovery, pledging to decarbonise their domestic transport sectors in order to reach their net-zero goals. What decisions and trade-offs might governments need to make in order to support domestic aviation and meet their environmental targets in a post-pandemic world? Read More

Articles
Depiction of The role of sustainability in merger control
5 minute read

The role of sustainability in merger control

The recent focus on sustainability in the context of coordination agreements and in state aid cases1 has now spread to merger control.2 This article addresses how sustainability fits into the merger assessment framework and what we can learn from environmental economics and the economics of climate change… Read More

Articles
Depiction of Green derivatives? Trading for a low-carbon future
8 minute read

Green derivatives? Trading for a low-carbon future

Financial markets facilitate economic growth, which contributes to global prosperity and wellbeing. The political recognition that addressing climate change is also integral to these has seen financial markets adapt by providing a way to value the externality of pollution. Markets need reliable and liquid carbon and energy benchmarks to deliver an efficient transition from high- to low-carbon energy generation. Gordon Bennett, Managing Director of Utility Markets at ICE, considers the role of derivatives markets. Read More

Articles
Depiction of RIIO-ED2 Sector Specific Methodology Decision: on track to net zero?
8 minute read

RIIO-ED2 Sector Specific Methodology Decision: on track to net zero?

In December 2020, Ofgem published its Sector Specific Methodology Decision (SSMD) for the RIIO-ED2 price control covering the electricity distribution (ED) sector. In this article, we review Ofgem’s RIIO-ED2 SSMD and compare some of its elements with Ofgem’s recent Final Determinations (FDs) for the gas distribution and gas and… Read More

Articles
Depiction of Social discount rates: inequality and the long term
10 minute read

Social discount rates: inequality and the long term

The second article in this two-part series on Social Discount Rates (SDRs), as used in project and policy appraisal, discusses new evidence on how the rate at which the SDR declines could change, and how it could be adjusted to take inequality into account. Adjusting for inequality can reduce the discount rate even further than highlighted in our first article—to below 2%. The SDR could also decline more slowly than currently assumed. This would increase the benefit–cost ratio (BCR) of almost all projects seeking approval for government funding Read More

Articles
Depiction of Making a difference: supporting investment in low-carbon electricity generation
11 minute read

Making a difference: supporting investment in low-carbon electricity generation

The Contracts for Difference (CfD) scheme is one of the UK government’s main mechanisms for supporting investment in low-carbon electricity generation. In the last two CfD allocation rounds, offshore wind generators secured 95% of the available support at much lower prices than previously achieved. What does this mean for the design of the scheme in the future? Is there any merit in guaranteeing some support for less developed (and more costly) technologies, and what other objectives are policymakers considering when choosing technologies to compete with each other for CfDs? Read More

Articles
Depiction of A formula for success: reviewing the social discount rate
12 minute read

A formula for success: reviewing the social discount rate

The social discount rate (SDR) is a crucial component of the UK government’s approach to project and policy appraisal. Government guidance has stipulated the same SDR (3.5%) since 2003. In the first of two Agenda in focus articles, we show that recent research can reasonably support an SDR of under 2.5%; and that this SDR declines considerably more slowly as the appraisal period is extended than the one that is currently used Read More

Articles
Depiction of RIIO-2 Draft Determinations: what next?
15 minute read

RIIO-2 Draft Determinations: what next?

On 9 July 2020, Ofgem published its Draft Determinations for the RIIO-2 price controls for the GB electricity transmission (ET), gas transmission (GT), and gas distribution (GD) sectors, and the electricity system operator (ESO).1 The price controls are due to start on 1 April 2021 and… Read More

Articles
Depiction of Decarbonising transport: a just transition?
9 minute read

Decarbonising transport: a just transition?

In March, the UK Department for Transport (DfT) published ‘Decarbonising Transport: Setting the Challenge’, a policy paper outlining current and planned policies needed to decarbonise the UK’s domestic transport sector. We provide a commentary on some of the DfT’s strategic priorities—the shift to active and public transport, as well as the decarbonisation of the passenger vehicle fleet. We then discuss some of the wider social implications raised by the proposed measures Read More

Articles
Depiction of Taking Britain to net zero: Ofgem’s decarbonisation action plan
8 minute read

Taking Britain to net zero: Ofgem’s decarbonisation action plan

On 3 February Ofgem, the energy regulator for Great Britain, published its decarbonisation action plan to support the UK in achieving net zero carbon emissions by 2050. Outlining Ofgem’s role in facilitating decarbonisation, the plan lists the trade-offs faced and nine actions that the regulator will take. We look at what the plan says and its implications Read More

Articles
Depiction of What is the purpose of business?
2 minute read

What is the purpose of business?

Why are so many firms insisting on telling us what their ‘purpose’ is? David Jevons, Oxera Partner, has been looking at the role of business in today’s society and discusses the purpose of a corporate purpose. Since the 1970s, introductory economics and finance classes have taught that the purpose of a firm is to maximise shareholder wealth; yet today, some of the most successful and high-profile firms are keen to communicate a different purpose. Read More

Depiction of What is the role of the consumer in purpose-led business?
< 1 minute read

What is the role of the consumer in purpose-led business?

A monthly podcast debating what it means to go Beyond the Bottom Line. Featuring Oxera experts and leaders in business and finance. Read More

Depiction of Do investors hold the key to changing the purpose of business?
< 1 minute read

Do investors hold the key to changing the purpose of business?

A monthly podcast debating what it means to go Beyond the Bottom Line. Featuring Oxera experts and leaders in business and finance. Read More

Articles
Depiction of Beyond the Bottom Line
2 minute read

Beyond the Bottom Line

What society expects from business is evolving rapidly. New business models mean that intermediaries are being removed and traditional value chains are being disrupted. Advances in AI and automation are having profound effects on employment. Communities are exerting enormous social pressure and questioning globalisation. Furthermore, we urgently need to… Read More

Articles
Depiction of Blinded by the sun: the future of renewables disputes
7 minute read

Blinded by the sun: the future of renewables disputes

The deployment of renewable energy technologies looks set to continue to grow. However, it can be challenging to integrate these technologies into existing policy frameworks and energy systems. Renewables have also been prone to legal disputes, as illustrated by recent cases brought against the Spanish government. As such disputes become more commonplace, a range of economic, financial and public policy issues will need to be examined Read More

Articles
Depiction of Gas markets, regulation and politics: implications of the energy transition
8 minute read

Gas markets, regulation and politics: implications of the energy transition

Until recently, gas was seen in Europe as a complement to renewable energy—i.e. a cleaner (albeit costlier) alternative to coal. Since 2017, opinions have been changing, primarily as a result of stronger evidence on the pace of climate change. Nonetheless, as Sir Philip Lowe, Oxera Senior Adviser, explains, gas will continue to have an important role—albeit this is contingent on future innovation and the roll-out of gas investment, both of which in turn depend on politics and market regulation Read More

Articles
Depiction of Putting the genie back in the bottle—deposit return schemes on plastics
8 minute read

Putting the genie back in the bottle—deposit return schemes on plastics

In March 2018 the UK government announced a plan to introduce a deposit return scheme for plastic, glass and metal drinks containers in England. Aimed at curbing pollution by stimulating recycling, the scheme will be consulted on later this year, and will bring England into line with many other EU countries that already have such schemes. From a traditional and a behavioural economics perspective, what conditions are necessary in order for these schemes to achieve the intended policy objectives? Read More

Articles
Depiction of To mothball or not to mothball?
7 minute read

To mothball or not to mothball?

The current power generation shift from carbon-intensive energy sources towards carbon-neutral, intermittent sources such as wind and solar continues to be a priority throughout the EU. This transition has consequences for the efficient design of power markets. Jan Bouckaert, Oxera Associate and Professor of Economics at the University of Antwerp, and Geert Van Moer, PhD Fellow of the Flanders Research Foundation, and University of Antwerp, discuss recent research on the implications for investments in conventional power plants. Read More

Articles
Depiction of Cities in crisis? How the UK Bus Services Act can improve health and the economy
8 minute read

Cities in crisis? How the UK Bus Services Act can improve health and the economy

Over 40,000 deaths a year in the UK are attributable to poor air quality, with air pollution being directly linked to cancer, asthma, strokes, heart disease, diabetes, obesity and dementia. The cost to the economy is estimated at £20bn per annum. In addition to this economic cost, there are air-quality requirements set out in legislation. In July 2017, the government published its air-quality plan to meet these legal requirements and address the cost of poor air quality. Read More