Depiction of The Economics of Climate Change

The Economics of Climate Change

52 Posts

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. The economics of climate change offers insights and answers to these global challenges.

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, sustainable, more impactful, more meaningful action.

By bringing clarity to the trade-offs, incentives and behaviours that are critical to a low-carbon future, climate 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
Green agreements: Oxera’s perspective on the new UK guidelines
Carbon prices: working together or pulling apart?
The GHG Protocol: measuring firms’ carbon footprints

Growth Zero

Using economics to tackle the world’s biggest challenges

The Economics of Climate Change at COP26

The Economics of Climate Change: 52 posts

Articles
1 minute read
Depiction of Sustainable Divergence between the UK and the EU—the Fair Share Principle in Practice

Sustainable Divergence between the UK and the EU—the Fair Share Principle in Practice

As sustainability continues to grow in importance for businesses, regulators are starting to provide guidance on how competition law applies to ‘green agreements’. In our recent article, written alongside Linklaters, we examine how the European Commission and the UK’s Competition and Markets Authority (CMA) are shaping their frameworks to account… Read More

Articles
5 minute read
Depiction of Reducing or removing CO2 emissions: Can offsets make the difference?

Reducing or removing CO2 emissions: Can offsets make the difference?

As countries and corporates focus on reducing emissions in line with European net zero targets up to 2050, in this article, Oxera Partner Sir Philip Lowe examines the use of offsets, particularly in hard-to-abate segments of the economy. Oxera’s research on… Read More

Articles
< 1 minute read
Depiction of Water regulation in Italy: considerations on the new MTI-4

Water regulation in Italy: considerations on the new MTI-4

Ahead of the new regulatory period for the integrated water service, in December 2023, ARERA (Autorità di Regolazione per Energia Reti e Ambiente) published the decision setting the new regulatory framework for Italian water networks, the so-called MTI-4. According to the latest evidence, the regulation contributed to improve the outcomes… Read More

Articles
2 minute read
Depiction of Green agreements: Oxera’s perspective on the new UK guidelines

Green agreements: Oxera’s perspective on the new UK guidelines

The CMA has launched its Green Agreements Guidance to help businesses co-operate on environmental goals. This new guidance will help businesses understand how they can collaborate on environmental sustainability goals while adhering to the law.1 Oxera welcomed the opportunity provided by the CMA to comment on the draft… Read More

Articles
8 minute read
Depiction of Rethinking HS2

Rethinking HS2

On 4 October 2023, Prime Minister Rishi Sunak confirmed that Phase 2 of High Speed Two (HS2) would not go ahead.1 Was this the right call? How do we make the most of where we are now? To answer these questions, we need to understand why HS2 was… Read More

Articles
4 minute read
Depiction of The Oxera Energy Model: price coupling in the European energy mix

The Oxera Energy Model: price coupling in the European energy mix

Oxera’s new Energy Model enables detailed analysis of a range of future scenarios involving the energy generation mix in Europe. The interactive map below showcases one example relating to price coupling. (For an introduction to this topic, see Oxera’s Agenda article from April 2023.)… Read More

Articles
8 minute read
Depiction of Carbon prices: working together or pulling apart?

Carbon prices: working together or pulling apart?

Carbon pricing is often recommended by economists as a way to reduce greenhouse gas emissions. However, in practice, several different carbon prices are used in the aviation sector. What are each of these prices, and why do they differ? And are carbon markets even working correctly? Given the unfolding… Read More

Articles
6 minute read
Depiction of Contemporary infrastructure business cases: assessing impact in the round

Contemporary infrastructure business cases: assessing impact in the round

Recent developments in infrastructure business cases reflect a complex and volatile environment. Writing infrastructure business cases now comes with new challenges—but how can we tackle these challenges in such a rapidly evolving environment? We explore the key points that factor into this, including the Five Case Model, value-based decision-making, uncertainty,… Read More

Articles
13 minute read
Depiction of Decoupling electricity and fossil fuel prices: bright idea or lights out?

Decoupling electricity and fossil fuel prices: bright idea or lights out?

The prolonged period of high energy prices in Europe has called into question the current design of electricity markets, and in particular the direct link between gas and electricity prices. Various short-term measures have been adopted to break this link, and some more fundamental changes to electricity markets are… Read More

Articles
8 minute read
Depiction of Nature: the root of all capital?

Nature: the root of all capital?

Natural capital is relevant to all of us, not just those who are environmentally conscious. An unbalanced focus on financial or economic capital has led countries and companies to focus on policies that deliver short-term financial or economic gains, but at the expense of a longer-term loss in terms… Read More

Articles
13 minute read
Depiction of The GHG Protocol: measuring firms’ carbon footprints

The GHG Protocol: measuring firms’ carbon footprints

Like a growing number of businesses, Oxera has made an explicit commitment to reducing our carbon emissions and becoming a net zero organisation. As part of this, we have estimated our annual carbon emissions using the most widely used method: the GHG Protocol. Carbon reporting is still in its… Read More

Articles
12 minute read
Depiction of Stepping on the gas: European emergency measures to deal with high energy prices

Stepping on the gas: European emergency measures to deal with high energy prices

High gas and electricity prices across Europe have raised urgent concerns and started a debate about possible ways to mitigate the impacts on consumers. Countries have adopted a variety of national measures, which can be broadly classified under four categories: retail market interventions, wholesale market interventions, security of supply… Read More

Articles
5 minute read
Depiction of Will the end of a golden age for UK transport infrastructure be a catalyst for a green era?

Will the end of a golden age for UK transport infrastructure be a catalyst for a green era?

Arguably, the UK has gone through a golden age of transport infrastructure planning and delivery in recent years. Since the turn of the millennium, transport capital budgets have grown and grown, with the £96bn integrated rail plan for upgrades in the Midlands and the North, £27.4bn announced for the second… Read More

Articles
9 minute read
Depiction of Fit for 55? The impact of the EU’s climate package on the aviation industry

Fit for 55? The impact of the EU’s climate package on the aviation industry

What will be the impact of the EU’s Fit for 55 package on European aviation? The policies are likely to affect passenger demand, fares and emissions, but a number of questions remain over potential distortions and how the policies can help to achieve ambitious net zero targets. Oxera was… Read More

Articles
10 minute read
Depiction of Ticking the boxes on a green self-assessment, and the risk of greenwashing

Ticking the boxes on a green self-assessment, and the risk of greenwashing

In EU competition law, the key criteria for green self-assessments for companies are ‘fair share’ and ‘indispensability’. But how can we assess these from an economics perspective? And how can we distinguish legitimate sustainability agreements from greenwashing? We consider how the European Commission deals with consumer benefits in its… Read More

Articles
9 minute read
Depiction of Grounded? The environmental implications of modal shift from air to rail

Grounded? The environmental implications of modal shift from air to rail

With growing pressure on economies to decarbonise in line with the 2015 Paris Agreement, transport—and particularly air transport—has come under increased scrutiny. Moving passengers from air to rail has been proposed as one way to decarbonise the sector. To this end, the EU and national governments have invested in high-speed rail lines and discussed restrictions on short-haul flights. But does rail always trump air from an environmental perspective? Read More

Articles
7 minute read
Depiction of Bidding for a more sustainable future: carbon trading in the EU

Bidding for a more sustainable future: carbon trading in the EU

In the context of a rapid increase in global energy and carbon prices since September 2021, questions have emerged around the functioning of the EU carbon market and the role of carbon prices in public policy. How can we assess whether the carbon market is functioning well? What does the evidence tell us, and is there a need for further policy intervention? Read More

Articles
6 minute read
Depiction of Creating a market for negative emissions

Creating a market for negative emissions

As the curtain dropped on last year’s COP26 summit, many were heartened by the agreements made. Yet more needs to be done to fast-track the roll-out of negative emissions technologies that will be vital in addressing irreversible global damage from carbon emissions. Oxera research for Drax found a range of market design mechanisms through which these technologies could figure in the UK’s Emissions Trading Scheme. Angela Hepworth, Innovation Commercial Director at Drax Group, looks at the role of negative emissions technologies in reaching net zero targets. Read More

Articles
11 minute read
Depiction of Anticipating future public policy changes in environmental cost–benefit analysis

Anticipating future public policy changes in environmental cost–benefit analysis

In pursuit of net zero targets, public entities worldwide are increasingly employing environmental cost–benefit analysis (CBA). The outcome of such an analysis depends on the public environmental policy standards applicable at that time. But what if these standards change? Ilaria Noviello, Oxera Analyst, and Shaun Tey, Economist at Ofcom, draw on a case study involving the Netherlands Authority for Consumers and Markets (ACM) to explore how policymakers can account for potential changes to public policy when conducting environmental CBA. Read More

Articles
9 minute read
Depiction of Meaningful purpose in business

Meaningful purpose in business

What is the purpose of a business? Recent years have seen growing social, political and market pressures on business leaders worldwide to go beyond simply creating short-term value for shareholders. Utilitalia—the federation of Italian water, energy, and municipal waste companies—asked Oxera to explore how a wider purpose can be embedded within an organisation, and how performance could be monitored. Read More

Articles
7 minute read
Depiction of Washing out greenwashing: regulation and investment for a net zero future

Washing out greenwashing: regulation and investment for a net zero future

What is the role of regulation in nurturing new markets for environmental, social and governance (ESG) investment? ESG investing has grown significantly in recent years as investors look for sustainable and ethical opportunities. This has generated issues such as financial ‘greenwashing’, whereby products are mis-sold as being more sustainable… Read More

Articles
9 minute read
Depiction of Decarbon-nudge?

Decarbon-nudge?

Decarbonisation is one of the largest challenges facing societies across the world, and consumer behaviour has an important role to play in achieving this goal. Behavioural economics shows us that consumer behaviour can be influenced by ‘nudges’ and choice architecture. So what role can nudges play in helping us to decarbonise? Read More

Articles
9 minute read
Depiction of High time for hydrogen: establishing a hydrogen value chain in Europe (part 2)

High time for hydrogen: establishing a hydrogen value chain in Europe (part 2)

Across Europe and around the world, hydrogen is gaining traction as a low-carbon energy source with new use cases. In this two-part series, we provide an overview of key strategic developments for hydrogen in the EU and the UK. Our first article introduced the hydrogen value chain and associated upstream issues (i.e. production). Here, we focus on the midstream (i.e. storage and transportation) and downstream (i.e. usage) elements of the value chain. Read More

Articles
7 minute read
Depiction of Economics of Climate Change—how economics can enable the transition to net zero

Economics of Climate Change—how economics can enable the transition to net zero

to finance, slow policy and regulatory coordination, and insufficient adoption of decarbonisation solutions by businesses and consumers. In this article, we reflect on the session chaired by Oxera on the Economics of Climate Change at COP26 on one of the World Leader’s Summit days, to explore how economics can help to remove these barriers, as well as helping to make any net zero transition a fair one. Read More

Podcasts
1 minute read
Depiction of The Economics of Climate Change

The Economics of Climate Change

The UN Climate Conference, COP26, provides the perfect backdrop for our latest episode of the Agenda podcast. Many countries around the world are signing up to targets aimed at achieving net zero greenhouse gas emissions, while the world is also in the grip of an energy crisis. On this podcast,… Read More

Articles
7 minute read
Depiction of High time for hydrogen: establishing a hydrogen value chain in Europe (part 1)

High time for hydrogen: establishing a hydrogen value chain in Europe (part 1)

Across Europe and around the world, hydrogen is gaining traction as a low-carbon solution to our energy and transport needs. This is the first of two articles investigating the key strategic developments for hydrogen in the EU and the UK, and identifying the potential regulatory challenges that accommodating a hydrogen transition might entail. In this article, we introduce the hydrogen value chain and examine some upstream production issues. The second article will focus on the midstream (storage and transportation) and downstream (usage) elements of the value chain. Read More

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

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
17 minute read
Depiction of When to give the green light to green agreements

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

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

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

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
1 minute read
Depiction of Ofwat: ambitions for PR24+

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
3 minute read
Depiction of ‘Great’ British Railways?

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

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

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

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

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

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

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

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

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
10 minute read
Depiction of Decarbonising transport: a just transition?

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

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

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

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

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

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

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
2 minute read
Depiction of Beyond the Bottom Line

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

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

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

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

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

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