Economics of Energy and Environment - Assignment Example

Economics of Energy and Environment Introduction The paper discussesthe key trends in energy consumption and prices in the UK. It also discusses initiatives taken by the UK government to ensure a Low Carbon Economy. Question 1: Describe Key Trends in Energy Consumption and Prices for the UK The demand for energy is forecast to increase immenselyin a global context, and the UK is forecast to increase its consumption as well. In the United Kingdom, different sectors utilise energy for varied purposes and in diverse extents. The domestic sector in the UK is accountable for using almost 34% of energy. The demand for domestic energy is recognised to be increasing by a considerable extent of which oil use is over 70 million tonnes per annum. In the period in between 1990 and 2004, there had been an increase of 13% in number of households, matched with the consumption of the energy whichincreasedby over 14% in this sector. From the year 1990, the consumption of energy is observed to be increased for heating purposes. The demand and the utilisation of electricity had amplified in a steady manner for electrical appliances (Ward, “What Are the Energy and Power Consumption Patterns of Different Types of Built Environment?”). Data Section Energy Consumption In Different Non Domestic Sectors Source: (Ward, “What Are the Energy and Power Consumption Patterns of Different Types of Built Environment?”) In relation to energy consumption, in the non-domestic sector, the key segments which are observed to be utilising energy by a significant extent are commercial offices of industries, small shops, schools and universities as well as hospitals. In the education sector, the institutions of higher education and universities are perceived to be the major users of energy. The leisure sector comprising retail stores, catering and hotels are recognised to be the major segments utilising energy of around 46%. These are the various sectors which are conceived to be using energy immensely in the UK (Ward, “What Are the Energy and Power Consumption Patterns of Different Types of Built Environment?”). In the year 2011, the consumption of energy in relation to fuel obtained from natural resources was accountable to 147,011 thousand tonnesof oil equivalent. In this respect, fuel has been consumed of around 8,669 thousands for the purposes of non-energy. The remaining amount of fuel had been utilised for energy motives. It has been observed that the consumption of energy in the UK fell to its lowest level in the years2010 and 2011 compared to the year 1984. This decrease in energy has been conceived due to the reduction of 18% in the utilisation of gas. From the year 1970, there has been a change in the consumption of fuel from solid fuels to fuel mix from 46,120 million tonnes to 2,437 million tonnes of oil in the year 2011. The consumption of fuel has been substituted by gas which increased from 14,408 million tonnes to 42,378 million tonnes of oil equivalent from the year 1970 to 2011. The consumption of electricity is also observed to have increased by a considerable extent i.e. by 65% which is equivalent to 27,334 million tonnes of oil (Crown, “Energy Consumption in the United Kingdom: 2012”). The industrial sector is responsible for consuming around 40% of energy which amounted to around 62,333 thousand tonnes of oil equivalent. On the other hand, the domestic sector and transport are perceived to be utilising nearly 24% and 18% respectively. Other users including public administration, agriculture and commerce are observed to be using 12% of energy. Furthermore, 7% of the energy was consumed for non-energy motives (Crown, “Energy Consumption in the United Kingdom: 2012”). Domestic Energy Consumption From The Year 1970 To 2011 Source: [1] (Crown, “Energy Consumption in the United Kingdom: 2012”) In the year 1990, it has been perceived that the industrial sector consumed around 24% of energy which signifies that there was fall in energy consumption in the industrial sector as compared to the period of 1970. There has been a rise in the consumption of energy in the transport sector. The domestic sector is observed to be utilising around 26% which depicts that there was minor increase in energy consumption. Public administration and agriculture and commerce which are related to other users and non-energy utilisation of energy are conceived to be the same as in the year 1970 i.e. 12% and 7% respectively. In the year 2011, it has been perceived that there wasdecreased demand of energy amid the industrial sector of around 18%. The transport and domestic sector were observed to be utilising around 38% and 26% respectively [1] (Crown, “Energy Consumption in the United Kingdom: 2012”). The Prices Of Gas, Electricity And Petrol From The Year 1990 To 2010 Source: (Parliament, “Energy Price Rises and Fuel Poverty”) The prices of gas as well as energy are observed to have increased in a rapid manner. This rise in prices is recognised to be affecting the economic growth of the UK industries and has led to inflation. In this respect, the spending on power and fuel has been raised for millions of households. This trend of price hike is perceived to be continuing for a longer period of time. In the year 2009, the bills of gas as well as electricity amounted to around £1,200 which symbolises an increase of 30%as compared to the year 2005. The prices of oil as well as Liquefied Petroleum Gas (LPG)have increased more as compared to gas. The fuel prices are recognised to be unstable and are considered to be rising since 1990. There are various reasons which are responsible for this hike including decline in the output of UK, more reliance on global markets, increase in global demand and taxation policies with regard to carbon emission (Parliament, “Energy Price Rises and Fuel Poverty”). From the aforementioned discussion,the following trends in energy consumption and price for the UKstand out. Different sectors are observed to be utilising energy to varied extents. There aresigns that there is a decrease in the energy consumption level among different sectors in the UK. On the other hand, fuel prices are observed to have increased in a drastic manner. Theory Section Question 2: To What Extent And Why Can Competitive Markets Be Expected To Deliver The Low Carbon Economy? In the UK, Carbon Di-Oxide (CO2) is determined to be the major constituent of greenhouse gases (GHG) emissions. CO2 is recognised to be responsible for around a majority of the GHG emissions. In this respect, the Carbon Plan has been formulated with the intention of reducing the emissions of GHG which was driven by the increased usage of coal and gas for generating electricity and household consumption respectively. In the UK, plans have been formulated with the intention of minimising the effect of carbon emission and other harmful gases in the environment. The government of the UK has devised a Carbon Plan with the objective of accomplishing decarbonisation in its energy policy by 2050. A low carbon economy will facilitate the UK in improving energy security as well as reducing the cost of energy for consumers, especially for poorer households. The existing Carbon reduction Plan has been effective in reducing the emission of greenhouse gases (GHG). In this respect, from the year 1990 to 2010 there was a reduction in the release of harmful gases and this reduction has been due to a number of reasons. The most important has been the replacement of an enormous number of power stations which were based on coal. There is a development of renewable sources of energy and wind for generating power. In the UK, around 16% of electricity is recognised to be generated from nuclear power. The government support in this sector is allowing new entry (licensing new technology) for renewable energy as well as increasing regulation on coal and oil power stations to limit the amount of GHG they produce. The aim has been to rebalance the costs and prices of energy production to make new technology more competitive relative to existing energy production. In the side of consumption, although there has been a rapid growth of population as well as housing, energy efficiency has increased. Emission through buildings recognised to be reduced by 18%. This reduction has been linked tomore widespread adaptation of latest technological condensing boilers which are more efficient in saving energy and minimising release of harmful gases. In the UK, almost 60% of the houses are built using cavity wall with insulation for minimising energy loss and reducing heating costs. There also has been a reduction by 46% in the industrial sector in relation to the emission of GHG. Furthermore, in the agricultural and the transport sectors emission of GHG has been minimised. The progress made in these areas has been based on subsidising energy efficiency measures (such as insulation grants), demanding electricity supply companies promote energy efficiency to their customers, and having stricter regulations on new buildings in the industrial, commercial and residential sectors that require all to meet near zero or zero carbon emission standards. [2] (Crown, “The Carbon Plan: Delivering our Low Carbon Future”). The government of the UK has planned to install advanced technologies which are cost effective as well as certified for better management of energy in future. By 2020, all houses are expected to be insulated with the intention of minimising energy consumption. Moreover, carbon emission from cars will be reduced with the assistance of car engines with internal combustion for better fuel efficiency. This is achieved through regulation on emissions. Furthermore, there are incentive schemes (grants) to adopt electric cars or cars with lower engine capacity (lower road tax). Gas as well as renewable power stations will be replacing the coal-fired ones. Furthermore, electricity will be generated from diverse sources with the motive of providing better energy security and minimising the consumption of fossil fuel. Japan is also observed to be adopting policies with the objective of minimising the consumption of energy by around 30% inside 2030. The government of Sweden has taken initiative strategies to reduce energy consumption by 20% within the period 2020. It has been observed that the around 37% of GHGs were emitted from houses and buildings. In this regard, with improved insulation, utilisation of products which are energy efficient as well as procurement of energy from low carbon bases,will assist in minimising emission to zero by the year 2050. In the transport sector, the emission of GHGs is determined to be reduced with the aid of more efficient engines. Moreover, advanced technologies including electric batteries, hybrid technologies and fuel cells based on hydrogen will assist in reducing emission by 2050. The industrial sector accounts for one-fourth of the total emission in the UK. Of this, more than 80% of GHG emission is produced from heat generated in the manufacturing plant of steel, cement and ceramics. The industrial sector with the utilisation of low carbon efficient technologies will be able to minimise GHG emissions [2] (Crown, “The Carbon Plan: Delivering our Low Carbon Future”). Therefore, it can be comprehended that advanced technologies with more energy efficiency and reduced emission capabilities will be facilitated with the opportunity of delivering Low Carbon Economy. In this context, it has been perceived that the UK government hasplanned to adopt different technologies for diverse sectors in order to minimise the dependence on single technology. The government has planned to develop a competitive market with the notion of creating better technologies with minimised carbon emission capabilities. Moreover, with the competitive market conditions these low carbon advanced technologies will be procured at low prices. The competition in the worldwide markets will encourage firms or companies to produce and manufacture innovative as well as creative products for better reduction of emission. In this respect, a diverse portfolio has been formulated in relation to technologies for intensifying market competitions for companies with respect to market share, cost structure and innovativeness. The UK government has planned to adopt cost effective as well as innovative technologies with the objective of saving more energy and reduce emission of GHG[2] (Crown, “The Carbon Plan: Delivering our Low Carbon Future”). It can be realised that competitive market conditions will assist in acquiring better innovative technologies at low prices which will in turn facilitate in GHG emissions reduction and conservation of energy. These are the various reasons which will assist in developing a ‘Low Carbon Economy’ in the near future. Therefore, the UK plans can be summed up as having new regulations on new products and technologies to make them more energy efficient; providing subsidies and grants to adapt new technology and improve energy efficiency; and licensing renewable technology in the generation of power without favouring a single type of technology. Discussion or Analysis Section Estimation Of Emission Of Average New Car And Van For The Fourth Carbon Budget Period And Upto 2050 Source: [2] (Crown, “The Carbon Plan: Delivering our Low Carbon Future”) Question 3: What Are The Economics Of Government Intervention To Promote A Low Carbon Economy? The government of the UK is recognised to be playing an important role in formulating regulatory policies as well as market structure with the objective of minimising GHG emissions and acquiring innovative technologies for better energy efficiency. The government with the vision of minimised GHG emissions by the year 2050 has provided financial assistance for better accomplishment of proposed Carbon Plan. The government has offered around £300 million for the incentives of consumersin order to reduce the cost of ‘ultra-low emission vehicles’ (ULEV) for consumers as well as businesses. The government with this financial assistance as well as strategy will be able toboost the development along with growth of ULEV in the worldwide market segments.In this regard, the government is providing grants of around 25% or at most £5,000 for the cost of the vehicle. The consumers as well as businesses are also offered with various tax benefits which include exemption from ‘Company Car Tax’, ‘Vehicle Excise Duty’ and ‘Enhanced Capital Allowances’ for ULEV. A ‘Plugged-In Places’ programme has been initiated with an amount of £30 million with the intention of developing recharging infrastructure on a national network in the UK.Moreover, the financial support provided by the government will assist in the enactment of future research objectives and development of innovative technologies. The government is also demonstrated to be providing around £560 million towards ‘Local Sustainable Transport Fund’ with the intention of encouraging people to travel with transport systems which emit less carbon. Additionally, the government provided £50 million to the authorities of local transport system for their improvement. Furthermore, £25 million has been offered towards the ‘Green Bus Fund’ with the motive of assisting them to purchase buses which emit low carbon.A sum of around £1 billion is provided by the government with the objective of supporting programme in relation to ‘carbon capture and storage’ (CCS). It will assist in developing the CCS technology in the commercial environment. Additionally, this fund will help in reducing cost as well as risks which are attached with CCS. The government has also offered around £50 million in order to improve innovativeness for marine as well as offshore technologies [2] (Crown, “The Carbon Plan: Delivering our Low Carbon Future”). Deployment Projection For Solid Wall In The Fourth Carbon Peiod By 2050 Source: [2] (Crown, “The Carbon Plan: Delivering our Low Carbon Future”) The UK government has provided all these financial supports with the aim of accomplishing the objective of minimum carbon emission and enhanced preservation of energy in the near future. The costs of technologies in relation to low carbon heat which include heat pumps as well as biomass boilers are identified to be expensive. In this regard, it has been observed that numerous households which amounted to around 2 million use heating oil. The government of the UK has planned to provide financial support with the intention of increasing the usage of low carbon heat. The government provided financial assistance in the form of incentives for better development of renewable sources of energy in a sustainable manner. The renewable obligation signifies that the suppliers of electricity are required to adopt certain technologies for generating energy from renewable sources. The government has also offered the ‘Renewable Heat Incentive’ plan with the notion of producing renewable heat. In accordance with this scheme, private and public sector organisations as well as communities will be provided with the opportunity of receiving payments for producing heat with the utilisation of heat technologies with low carbon emission. It has also planned to introduce the ‘Renewable Heat Premium Payment’ (RHPP) which will offer single payment facilities to households installing low carbon heat. These are the various policies as well as programmes which are formulated and implemented by the government of the UK with the objective of reducing carbon emission and ensuring effective preservation of energy. The UK government has also offered financial support as an intervention in order to accomplish the vision of ‘Low Carbon Economy’. To be mentioned, it has been observed that around 80% of emission in the UK is originated from the manufacturing processes of steel as well as ceramics. The remaining portion of the emissions is further argued to be a result of the chemical reactions at the time of cement production. In the year 2005, the EU Emissions Trading System (EU ETS) recognised as carbon cap as well as trade system was formulated with the objective of minimising emission from industries which are energy intensive and generating electricity such as refineries, cement, ceramics, paper and steel. With this concern, it was planned that the EU ETS would facilitate these industries to minimise emissions in a low cost manner which was again a major concern for the businesses as minimising emission rates required the inculcation of superior technology in the operational processes and thus was quite cost intensive [2] (Crown, “The Carbon Plan: Delivering our Low Carbon Future”). In this respect, it has been observed that the government of the UK is recognised to be playing a vital role towards the formulation as well as the implementation of Carbon Plan. The UK government provides financial assistance in order to minimise the emission of GHG as well as preserve energy for future prospects. The government of UK is also observed to be offering various concessions in technological factors for increasing the use of the technologies which emit lower margin of carbon. Question 4: Households are Currently Exempt from the Climate Change Levy. How Effective, and Why, Would an Increase in Household Energy Prices be to Reduce the Carbon Emissions from Households? Climate Change Levy (CCL) is a taxation policy of the UK government which was implemented in the year 2001. The government charges taxes on the usage of non-renewable sources of energy which include fuel. This policy has been commenced with the intention of increasing the use of energy efficient and low carbon emitting technologies in order to minimise the emission of GHG. The CCL is charged mainly in industries and other private sectors using non-renewable sources of energy. In this context, it has been observed that there is a reduction in the GHG emissions among industries. Households are perceived to be exempted from the CCL policy. Fuel as well as gases is identified to be consumed by many households, which is increasing carbon emission among household sector. Moreover, there is an intense increase in the price of gases and fuel on a global context which are perceived to be increasing the bills of households [3] (Crown, “Policies Are Putting a Cushion between Energy Prices and Household Bills”). In this respect, with the increased emission of carbon and consumption of energy among households, the prices of household energy should be increased. The increment of household energy prices will facilitate the government in minimising the use of non-renewable sources of energy among households. Moreover, with the hike in energy prices will enable the government in accomplishing the objective of reduced carbon emission from households. The households are required to adopt certain policies with the objective of saving their bill amount and energy. The policies which can be adopted by households entail insulating their houses, installing technologies with renewable energy capabilities and adopting products that are energy efficient (Less, “The Full Cost to Households of Renewable Energy Policies”). The increased prices of energy will encourage the people to acquire insulation in their houses with the objective of developing better procedure for preserving heat. This procedure will also facilitate householders to reduce their bill amount. The wall of the houses is required to be insulated with lofty as well as cavity wall which reduces the escape of heat from the house. Additionally, with the assistance of all these strategies, households will be able to save more energy as well as bill amount. There are various benefits which are attached with insulation which include saving of bill amount of £180 and £140 on lofty and cavity insulation respectively. The insulation process is determined to be assisting households to save more money as well as energy and in reduction of emission of carbon (British Gas, “Home Insulation”). Therefore, it has been perceived that increase in the prices of energy will help in reducing emission of GHG. The increased price of energy will initiate households to acquire more innovative technologies for producing renewable sources of energy. The households are required to get rid of energy consuming technologies with the intention of reducing bill amount and conserve energy. Moreover, households should adopt solar photovoltaic (PV) and wind turbine technologies with the motive of reducing demand for energy among households. The technologies will facilitate households with reduced electricity demand as well as will aid to minimise the emission of GHG through the use of fuel for heat production. In this respect, households with better renewable technologies will be facilitated with the opportunity of preserving more energy as well as reducingthe emission of carbon (Energy Saving Trust, “Getting The Most out Of Your Solar PV or Wind Turbine System”). Therefore, the household energy prices should be increased with greater government taxes in order to motivate people to install renewable technologies in their houses for reduced emission of carbon. Conclusion The households are also required to adopt innovative and certified household electrical appliances and products with the intention of better utilisation of energy. Moreover, households are required to adopt latest products which are energy efficient with the motive of ascertaining that energy is consumed at a minimum level. The households are required to acquire technologies which emit carbon in a minimised manner. Furthermore, these innovative and low carbon emitting technologies will facilitate households with better power as well as money saving opportunities (Boardman, “New Directions for Household Energy Efficiency: Evidence from the UK”). Therefore, it can be comprehended that the prices of energy is likely to increase for households, as the current market prices only pay for returns to existing energy production. By raising the regulation and costs of existing energy production, and providing grants and subsidies to encourage the adoption of new technology, the government is rebalancing the costs of energy consumption more in favour of low carbon technologies. In the long run, combined with technological developments making such technologies more affordable, and regulations requiring that they are used, there will be a shift toother non-renewable sources of energy in order to improve energy efficiency, preserve energy for future consumption, as well as reducing carbon emission. Works Cited Boardman, Brenda. “New Directions for Household Energy Efficiency: Evidence from the UK.” Energy Policy 32 (2004): 1921-1933. Print. British Gas.Home Insulation, 2013.Web. 08 Apr. 2013. [1] Crown. Energy Consumption in the United Kingdom: 2012, 2012. Web. 08 Apr. 2013. [2] Crown. The Carbon Plan: Delivering our Low Carbon Future, 2011. Web. 08 Apr. 2013. [3] Crown. Policies Are Putting a Cushion between Energy Prices and Household Bills, 2013. Web. 08 Apr. 2013. Energy Saving Trust.Getting The Most out Of Your Solar PV or Wind Turbine System, 2013.Web. 08 Apr. 2013. Less, Simon. The Full Cost to Households of Renewable Energy Policies.Publication, 2012.Web. 08 Apr. 2013. Parliament. Energy Price Rises and Fuel Poverty, 2010. Web. 08 Apr. 2013. Ward, Ian C. “What Are the Energy and Power Consumption Patterns of Different Types of Built Environment?.” Energy Policy 36 (2008): 4622-4629. Print. Read More