Carbon Price and Pollution Levels - Essay Example

? ECONOMICS FOR BUSINESS AND MANAGEMENT By Location Contents Contents TASK A 2 Will the new carbon price results to decrease in pollution levels? 2 TASK 2 5 Introduction 5 The observed volatility in price of tin is also attributable to the fact that tin market is a small market, where a few industries and producers dominate supply and demand. Besides, the economic hardships that occurred in the world during the years 2009 and 2012 are leading factors that have contributed to the tin’s price volatility. These hardships prompted poor business performance as well as low household confidence; hence damage reducing the demand for products that are made from tin, such as solder and electrical items. According to Adams (2013), tin is mainly used in the manufacture of electronic items, and considering that the semiconductor sales which are a good indicator of the performance of the electronics industry, which seem to have moderately improved after undergoing a lengthy failing period from the summer of 2011 to the last quarter of 2012. The direct relationship between tin consumption and its price is demonstrated in figure 2 in comparison with figure 1; here it is clear that the price of the commodity increases when its demand is high and decreases when its demand is low. 9 9 Figure 2: Source: ITRI (http://www.fastmarkets.com/tin-analysis-and-research/tin-q12013) 9 Conclusion 10 References 11 Adams, W., 2013. Tin Analysis and Forecast Q1 2013. [ONLINE] Available at: 11 [Accessed 30 December 2013]. 11 Base metals.com., n.d. All about Tin. [Online] Available at: [Accessed 30 December 2013]. 11 Fraser, C., 2013. Tin Price set to move higher in 2013. [online] Available at: < http://tininvestingnews.com/2519-tin-prices-higher-2013-supply-demand-surplus-indonesia.html>[Accessed 30 December 2013]. 11 Gandolfo, G., 2004. Elements of International Economics. Berlin: Springer. 11 Gordon, A., 2007. The Goal of Full Employment. New York: Wiley. 11 IMF, 2011. World Economic Outlook Databases (WEO). Available at [Accessed 23 July 2008 ]. 11 Mills, C., 2006. Prices in Recession and Recovery. New York: NBER. 11 Tucker B., 2010. Macroeconomics for Today. Boston, MA: Cengage Learning. 12 TASK A Will the new carbon price results to decrease in pollution levels? Climate change is a serious and rampant global challenge that requires the input of all nations in addressing it. There is urgent need for concerted efforts of international response and national efforts to reduce greenhouse gas (GHC) emissions. The international community has made efforts to reverse this ugly trend by setting up The United Nations Framework Convention on Climate Change (UNFCCC) whose main mandate is to respond to climate change. Frank (2007) asserts that the convention has set up The Associated Kyoto Protocol, a global agreement that categorizes countries by their level of industrialization and commits some countries to reduce their CGH emission rates. The Kyoto Protocol requires developed countries to reduce GHG emissions to 5 per cent below 1990 levels by 2012. It is prudent to note that climate change experts concur that tagging price on greenhouse gas release emissions is a potent strategy in a range of solutions put in place to curb the adverse effects of climate change. There is need for an effective carbon pricing system in which every tonne of pollution comes at a cost as opposed to being free. The system in structured in such a way that dirty energy sources pay more in carbon tax. The idea is logical and should not be viewed by the affected parties as a radical one; it is the best way to make entities embrace green technologies. For instance, if a pricing system exists, the economy will find it cost effective to build wind turbines instead of coal plants; instead of driving gas-powered cars, the economy will chose electric vehicles powered by renewable energy (Friedman, 2005). Setting of carbon price goes a long way in encouraging even the largest polluters to reduce the greenhouse gases they put into the atmosphere. Moreover, carbon taxation also gives economic impetus to the efforts of researchers, investors and entrepreneurs to come up with new less-polluting ways of undertaking activities we always take for granted such as producing and consuming goods and services of a modern economy. In the existence of pricing mechanisms, the markets will automatically adjust and transform to a clean energy future and to ensure that such transformation is cost effective (Gandolfo, 2004). Carbon taxation is an economic reform that puts a price tag on activities that have considerable adverse spillover effects to the entire society or community. In this regard, when making economic decisions the firms consider the costs of carbon pollution. The result is the attainment of lower carbon pollution, reduced risks of adverse climate change and better outcomes for society as a whole. The Government must be committed to the reform that provides the best platform in tackling the adverse effects of greenhouse gas emissions. Gillespie (2011) claims that in their pursuit to mitigate the adverse effects of greenhouse emissions through carbon pricing the government and international bodies charged with this noble tax must ensure they conduct it in such a way that is manageable for individuals, families and households, and for businesses and their employees. It is worth noting that despite the fact that carbon pricing has been set some firms still produce enormous amounts of carbon and fossils fuels to the environment. It is expected that the carbon pricing would increase the cost of production, which would then compel the companies to reduce their emission levels to the environment. The aim of every organization is to make profit and to realize profits firms have two options; one is to cut costs and the other is to maximize revenue. By setting carbon prices, the more the firms pollute the environment the more they have to pay in terms of carbon prices. Paying more cash in forms of carbon price implies that the firm will incur extra costs, which in turn eats into their profit (Griffiths & Wall, 2011). The firms should therefore reduce their emissions to the environment in a bid to cut costs. Nevertheless, this is not always the case because some firms may ignore the costs and continue to pollute the environment more. The most viable way to address the issue of emission of greenhouse gases such as carbon to the environment is the use of legislation. Legislation compels the various industries to reduce their emission of dangerous gases to the environment since failure to do that will attract hefty penalty such as termination of licensing practice. The justification for the use of legislation is that carbon price may fail if the firm has the capacity to cater carbon price. TASK 2 Introduction Inflation is an adverse macroeconomic element that should be addressed by any economy, which needs to attain economic growth. The price of tin has been fluctuation over the years as shown in figure 1. For instance, in the year 2008 the price of the tin fell by 51% while in October it increased by 16%. Price stability refers to a situation in which the prices of a product do not increase or reduce over a given period. This is a good indicator because it shows that the economy is performing well. Harford (2005) asserts that, on the contrary, there exists inflation and deflation, which defies the economic concept of price stability. Inflation refers to increase in the prices of products over a given period as the case with the price of tin, which rose by 16% in the year 2010. On the other hand, deflation refers to a situation in which the prices of goods falls as the case was in the year 2008 when the prices of tin fell by 51% in 2008 (IMF, 2011). This essay will analyse the price volatility of tin, between May 2008 and May 2013. Economic analysis of price fluctuations of tin between 2008-2013 According to basemetals.com, the volume of production of tin is the smallest amongst other base metals. As a result of the small market, liquidity issues are very common in the tin market, which can be attributable to increased volatility as well as its extended and sharp price movements as illustrated in Figure 1. Price instability exhibited by tin is not a good concept to the economy because it manifests economic instability. Business cycle refers to fluctuations in the economic activity that occurs in a recurring manner and as such, it explains the fluctuations between the prices. The business cycle occurs in five distinct stages, which include growth, peak, recession, trough, and recovery. Whenever the business cycle is at recession, the business in general performs poorly (Levit & Dubner, 2007). In fact, it results to adverse economic situations such as inflation, unemployment, losses to corporation, and decline in investment levels. On the other hand, period of growth and peak are desirable in that they are characterized by strong economic signals such as high employment levels, price stability, profitability of firms, and high investment levels. It is, therefore, preferable that the economy operate on growth or peak season. During part of 2008 and 2009, the price of tin reduced drastically, a condition that can be attested to the fact that during the same period there was economic downturn as a result of the 2007-2009 global economic crises (Levit & Dubner, 2007). Fraser (2013) indicates that the surplus supply of tin last occurred in 2008, which was largely as a result of a slowdown in demand due to the global economic crises. The low supply of tin, which significantly affects its price, is the fact that Indonesia is its leading producer in the world (about 40 percent), yet it has closed large proportion of its tin smelter in the recent years. The factors that have influenced Indonesia’s reduction in tin production include focus on other commodities and government policy, which leads to frequent change of output restrictions with little notice. For example, export of raw minerals such as tin has been banned severally, while mineral exports of taxed heavily in order for the government to benefit more from its resources and as an incentive for miners to carry out mining within the country. Figure 1: The monthly LME spot price for tin in USD per tonne between May 2008 and May 2013 Economists have unearthed three causes of business cycle, which include employment, inflation, and interest rates. During trough or recession period like the one spot price for tin in 2008 dropped, the interest rates are high, which means that the cost of acquiring capital for investing in business is high (IMF, 2011). This, therefore, implies that less people are taking up loans for investment. Lipsey and Chrystal (2011) argue that, with low investment levels, the unemployment level in the economy is usually high. As such, as this trend continues to soar, the overall effect is that the economy may go into a depression. In order to revive the economy from such an adverse trend, the government usually comes up with expansionary policies such as increasing public expenditure as well as reducing the rate of capital to encourage investment and reduce the unemployment rates. The other factors that characterise the business cycle include the issue of inflation. During the times of recession or trough, the economy is characterised by price volatility. The price of goods and services usually go up making life difficult for majority of households. Whenever the economy has high prices, the business cycle is affected negatively implying indirect relationship between inflation and business cycle. The other factor that affects business cycle is the issue of productivity. During peak and growth period since the economic cycle, the economy is always characterised by high productivity. Pierson (2001) says that it is important that government of the day and the management of various businesses put in place deliberate measures to ensure productivity through quality education and training, investment in infrastructure, and better government policies that encourage productivity. The observed volatility in price of tin is also attributable to the fact that tin market is a small market, where a few industries and producers dominate supply and demand. Besides, the economic hardships that occurred in the world during the years 2009 and 2012 are leading factors that have contributed to the tin’s price volatility. These hardships prompted poor business performance as well as low household confidence; hence damage reducing the demand for products that are made from tin, such as solder and electrical items. According to Adams (2013), tin is mainly used in the manufacture of electronic items, and considering that the semiconductor sales which are a good indicator of the performance of the electronics industry, which seem to have moderately improved after undergoing a lengthy failing period from the summer of 2011 to the last quarter of 2012. The direct relationship between tin consumption and its price is demonstrated in figure 2 in comparison with figure 1; here it is clear that the price of the commodity increases when its demand is high and decreases when its demand is low. Figure 2: Source: ITRI (http://www.fastmarkets.com/tin-analysis-and-research/tin-q12013) Conclusion The economic analysis of the price fluctuation of the prices of tin is referred to as price instability. This is an adverse economic concept because it results to wrong signals that can provide shocks to the economy. The volatility of price of tin shows that the economy is struggling and measures needs to be put in place ensure that the economy is on the recovery path. Several measures can be put in place to ensure that the economy recovers fully recovers and that there is price stability besides other positive macroeconomic elements such as economic growth and currency stability. While the prices of most commodities are affected by business cycles, seemingly the prices of tin are affected by specific factors such as demand and supply. The demand of tin is reflected by tits complementary and supplementary, for example the consumption of the electronic items, where tin is mainly consumed. References Adams, W., 2013. Tin Analysis and Forecast Q1 2013. [ONLINE] Available at: [Accessed 30 December 2013]. Base metals.com., n.d. All about Tin. [Online] Available at: [Accessed 30 December 2013]. Frank, G., 2007. The economic naturalist: in search of explanations for everyday enigmas. New York: Perseus Publishing. Fraser, C., 2013. Tin Price set to move higher in 2013. [online] Available at: < http://tininvestingnews.com/2519-tin-prices-higher-2013-supply-demand-surplus-indonesia.html>[Accessed 30 December 2013]. Friedman, M., 2005. The Moral Consequences of Economic Growth. New York: Knopf. Gandolfo, G., 2004. Elements of International Economics. Berlin: Springer. Gillespie, A. 2011., Foundations of Economics. Oxford: Oxford University Press. Gordon, A., 2007. The Goal of Full Employment. New York: Wiley. Griffiths, A. & Wall, S., 2011. Economics for Business and Management. Harlow: Pearson Education. Harford, T., 2005. The Undercover Economist. Oxford: Oxford University Press. IMF, 2011. World Economic Outlook Databases (WEO). Available at [Accessed 23 July 2008 ]. Levit, S., & Dubner, S., 2007. Freakonomics. London: Allen Lane. Lipsey, R. & Chrystal, S., 2011. Economics. Oxford: Oxford University Press. Mills, C., 2006. Prices in Recession and Recovery. New York: NBER. Office for National Statistics, 2006. Consumer Price Inflation. Available at [Accessed 23 July 2013 ]. Pierson, G., 2001. Full Employment. New Haven: Yale University Press. Taylor, J. & Weerapana, A., 2011. Principles of Microeconomics. Boston, MA: Cengage Learning. Tucker B., 2010. Macroeconomics for Today. Boston, MA: Cengage Learning. Read More