Fog in the Channel: reports of a Brexit boost are at best premature

A spate of surprisingly upbeat indicators published in August have prompted some to declare that the economic impact of the vote to leave the European Union has been overstated. Tempting though it is to believe this, such views are at best premature, writes Dimitri Zenghelis. We have not yet left the EU and businesses are waiting to find out whether the UK will stay in the Single Market

‘Hurricane Brexit’ – or why economists should admit they can’t always get it right

The Bank of England’s chief economist recently said his profession was “to some degree in crisis” over its failure to predict the 2008 financial crash and – to a lesser extent – the apparent resilience of the UK economy after the Brexit vote. Dimitri Zenghelis looks at how economic forecasting works and explains that its models are not infallible. Economists should be honest about the limitations of their predictions

Climate policy: equity and national mitigation

A diverse range of approaches, including contributions based on national interest and local benefits of climate action, is needed to meet the goals of the Paris Agreement. Now, research considers how equitable approaches may play a role

Both Brexit and the financial crisis highlight why economists should admit they can’t always get it right

The Bank of England’s chief economist recently said his profession was “to some degree in crisis” over its failure to predict the 2008 financial crash and – to a lesser extent – the apparent resilience of the UK economy after the Brexit vote. Dimitri Zenghelis looks at how economic forecasting works and explains that its models are not infallible. Economists should be honest about the limitations of their predictions

Negative interest rates are an opportunity for the UK to invest in sustainable infrastructure

The reservoir of free capital can help boost the UK’s productive capacity and secure a low-carbon future, writes Dimitri Zengheli

The importance of looking forward to manage risks: submission to the Task Force on Climate-Related Financial Disclosures

Submission made to the Task Force on Climate-Related Financial Disclosures, which was set up in December 2015 by the Financial Stability Board to “develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders”. The Task Force is chaired by Michael Bloomberg, and published its initial findings in March 2016. It is due to publish its final report by the end of 2016. The submission states: “[There is a] gap between what politicians have signed up to in Paris and what markets and fossil fuel companies are assuming. This gap should alarm policy-makers and central bankers: it suggests either asymmetric information or a lack of credibility in policies” The authors argue that companies should not only disclose the “carbon exposure” of their past activities, but they should also undertake an assessment of forward-looking business risks. They call for companies to carry out ‘stress tests’ for the risks associated with climate change, including business risks from new policies to reduce greenhouse gas emissions, and to disclose to investors their findings, as well as their strategies for dealing with those risks

Burden or opportunity? How UK emissions reductions policies affect the competitiveness of businesses

The ongoing review of the UK’s Fourth Carbon Budget is closely linked to the debate over the impact that domestic climate change policies can have on the competitiveness of businesses. Notably, there are concerns that, if the UK implements more ambitious climate policies than its trading partners, carbon-intensive producers might relocate. This could mean that some affected sectors may have to reduce their production of goods and services below the optimum level that would be achieved if there were uniform international climate policies. In addition, the impact of climate change policies on emissions reductions could be limited if big emitters simply relocate, especially if they move to jurisdictions that have lower environmental standards. This paper investigates to what extent these concerns are substantiated and whether they justify a change in the UK’s ambitions for reducing its emissions, including the Fourth Carbon Budget. It does so by drawing on a range of ‘ex-ante’ and ‘ex-post’ studies. ‘Ex-ante’ studies aim to predict the outcome of intended policies. They use simulation or generalised economic models with explicitly chosen theoretical foundations (such as costminimising behaviour by profit-maximising producers, or average-cost pricing). Such models are informed by broad empirical evidence about the behaviour of firms. ‘Ex-post’ studies, on the other hand, estimate the impacts of existing policies on business behaviour, using actual evidence and data gathered after their implementation. The paper also provides recommendations about how to ‘create a level playing field’ i.e. how to design policies that can mitigate the undesirable impacts of climate change policies so that UK businesses can compete on more equal terms with their international counterparts. It also highlights the complementary benefits associated with policies that increase a country’s capacity to compete in a global race for low-carbon innovation over the coming century

Taming the beasts of ‘burden-sharing’: an analysis of equitable mitigation actions and approaches to 2030 mitigation pledges

Headline issue: Countries are now seeking to reach a new international agreement on climate change, to be signed in Paris in December 2015. A key element of the international negotiations since the Kyoto Protocol, has been equity, but discussions have focused on narrow and unsatisfactory approaches based on ‘burden-sharing’ and ‘atmospheric rights’. These approaches mainly revolve around the assignment of the ‘right to emit’ or, as it is alternatively framed, the ‘costs and burdens’ of climate change action. Various proposals have been put forward that differ in terms of the principles and formulas applied in determining how the costs and burdens should be shared between countries. These range from historical cumulative emissions to relative capabilities based on GDP levels. Much of this debate, however, has proven divisive and often resulted in the search for a minimum acceptable level of individual action. Key findings: Negotiations about a new international climate change agreement are focusing too much on trying to share the burden of cuts in greenhouse gas emissions. Six of the seven different burden-sharing approaches to determining national pledges for reducing greenhouse gas emissions largely produce the same outcomes for individual countries, but they are likely to be divisive and lead to a lack of ambition. Countries should recognise that measures to cut greenhouse gas emissions have multiple benefits, including the reduction of local air pollution and traffic congestion. Countries should recognise that national pledges should be based on realising opportunities instead of ‘burden-sharing’. New approaches to ‘intended nationally determined contributions’ would be based on the principle of ‘equitable access to sustainable development’, rather than on the ‘right to emit’

The competitiveness impact of a UK carbon price: what do the data say?

This analysis uses the Input-Output tables from the UK National Accounts for 2011 to simulate the full multiplied impact of a uniform £20 per tonne carbon price on fuels and production costs across all 106 industries that comprise the UK economy, as well as whole economy production costs and final consumer prices. The carbon price is imposed on top of any carbon cost that was already present in 2011. Full cost pass-through is assumed along the value chain. The paper finds that only a small number of industries – including the oil refinement, coal, iron and cement sectors – that account for around 2 per cent of UK GDP, are likely to face production cost increases that put them under pressure from competition abroad. It states that “carbon policies will provide incentives to increase energy efficiency and resource productivity which could afford UK producers a competitive advantage in the long term, in a world where fossil fuel prices could rise and carbon reduction policies are likely to become more widespread and ambitious.” The paper concludes that policies are needed to help sectors that emit high levels of greenhouse gases and are exposed the international trade – such as the cement, mining and petroleum refinement industries – adapt to changing economic conditions resulting from a uniform carbon tax