TITLE Carbon tax will be popular with UK voters,

poll suggests

SOURCE https://www.theguardian.com/environmen
t/2021/feb/24/carbon-tax-would-be-
popular-with-uk-voters-poll-suggests

PUBLISHED 10th March 2021

COMMENTARY WRITTEN 1st October 2021

WORD COUNT 794 words

UNIT Microeconomics

KEY CONCEPT Intervention

Taxing carbon dioxide emissions would be popular with voters, polling suggests, as the
government moots ways to put a price on carbon that could help tackle the climate crisis
and fund a green recovery from the coronavirus pandemic.

Carbon taxes could be levied on energy suppliers, transport including flying, food,
imports and other high-carbon goods and services. At present, the UK levies implicit
taxes on carbon, for instance through duties on petrol and diesel, and some heavy
industries pay an effective price on carbon. But there are no taxes for consumers that are
explicitly geared to the carbon emissions created by the goods and services that they
buy.

Two-thirds of people said a carbon tax was a fair way to raise money, and that the
proceeds should be spent to benefit the country, according to a poll of 2,000 people
carried out by Opinium for the Zero Carbon Campaign, which is trying to persuade the
government to put a price on carbon ahead of the UN Cop26 climate summit in Glasgow
this November.

0
Candidate Number: jxv082 Session Number: 003295-0015

A similar number (68%) would also like to see poorer people protected from the impacts
of carbon taxes, and there was strong support for redirecting revenues towards creating
green jobs and retraining workers, investing the revenues in clean energy, and using
them to fund the NHS.

The poll also found a large majority in favour of a “green recovery” from the coronavirus
crisis, with 65% of people calling for a green recovery and a similar number wanting the
UK to show international leadership on the issue.

The Zero Carbon Campaign has estimated that a carbon tax could raise £27bn a year by
2030, and could work by replacing or simplifying existing green levies on industry.
Supporters of the campaign include the actor Stephen Fry, who said: “If [the
government] have the courage to make polluters pay, it will save many times more
people than have died during the pandemic. Support for the plastic bag tax rose after it
was implemented, and it was the same with other measures like the indoor smoking
ban. It just requires leaders to lead. And now is the time.”

The government is considering how to place a price on carbon, which could affect the
cost of goods and services from food to flying. Large sections of industry are already
covered by a carbon trading scheme, on the same principle as the EU emissions trading
scheme, which covered the UK before Brexit. A broad carbon tax could face opposition
from sectors that could see additional costs, such as farming. However, ministers are
under pressure to find ways of reaching the government’s target of net zero emissions by
2050, as well as restoring the public finances.

Many economists advocate a price on carbon as a way of reducing greenhouse gas

emissions globally, but attempts to coordinate carbon pricing at an international level
have failed to take off. The EU is considering levying taxes on imports of high-carbon
goods, called a carbon border adjustment, which is of concern to countries such as
China and Australia. The government has stepped back from suggestions this could be a
key topic of discussion for the UK’s presidency of the G7 and Cop26 climate summit this
year, however.

1
Candidate Number: jxv082 Session Number: 003295-0015

The prime minister, Boris Johnson, has made public commitments to “build back
better” from the Covid-19 pandemic, but the main measure brought forward to achieve a
green recovery is now in doubt. The green homes grant was unveiled last summer with
£3bn funding to help households install insulation, heat pumps and other low-carbon
measures. However, after only one in five of the 100,000 applications made under the
scheme have gone ahead, more than £1bn funding remains unspent and ministers plan
to rescind the unspent cash at the end of next month.

A Treasury spokesperson said: “We’re committed to building back better and greener
from the pandemic. The prime minister recently set out a ten point plan to achieve this
green Industrial Revolution and the Treasury’s Net Zero Review is looking at how the
transition to net zero should be funded.”

Commentary

This article talks about taxing carbon dioxide emissions and how it would be popular

with voters as the government implements ways to place a price on carbon to tackle the

climate crisis and a green recovery in the wake of the coronavirus pandemic.

A carbon tax is paid by businesses and industries that produce carbon dioxide

throughout their operations. The tax aims to eliminate the negative externalities

associated with emitting carbon dioxide and force the producer to pay the production

costs, thus internalizing the negative externality of production by forcing the producer to

pay the total fee. To reduce the externality, the government has to calculate the external

2
Candidate Number: jxv082 Session Number: 003295-0015

costs accurately to reflect these costs in the tax. In reality, when the government

intervenes by placing this carbon tax it may not eliminate the welfare loss but will most

likely bring it to the socially efficient output level.

3
Candidate Number: jxv082 Session Number: 003295-0015

When the government imposes a carbon tax, firms must pay a higher price for fossil

fuels. Therefore, it will appear as an upwards shift in the MPC curve to MPC + tax

because of the rise in their cost of production; however, it has further consequences

since other energy substitutes have a lower carbon emittance or stop the emissions. In

addition, the increase in the price of fossil fuels gives firms the incentive to either switch

the less-polluting energy sources or non-polluting sources.

If firms decide to switch to alternative, less polluting sources, Qopt will increase

because the output's external costs will be smaller. This is when the MSC curve shifts

from MSC1 to MSC2, indicating that the external prices are lower because of less

polluting resources. With the fall in external costs, the optimum quantity of output

increases from Qopt1 to Qopt2. A carbon tax has the effect of creating incentives for

producers to reduce the amount of pollution they create by purchasing less polluting

4
Candidate Number: jxv082 Session Number: 003295-0015

resources and switching to less-polluting technology. This reduces the size of the

negative externality and increases the optimum quantity of output. A tax on the polluter's

production does not have this effect; it corrects the over allocation of resources to be

good, reducing the amount of output produced.

It incentivizes producers to develop and use more environmentally friendly production

processes. A tax on carbon emissions might make renewable sources such as solar

panels more competitive than non-renewable sources like oil. This will encourage

investment in renewable energy sources. A carbon tax can accelerate the switch to

renewable sources and lower pollution costs.

It is a source of revenue for the government, which can be used for other government

projects such as constructing roads, schools, and hospitals. Revenue raised can also

be used to fund investment for alternatives.

A carbon tax is regressive, meaning that a fraction of the income is higher for lower-

income earners than higher-income earners. A carbon tax is an indirect tax that

consumers and producers partly pay. Therefore, consumers would be affected, and

shallow income consumers would be proportionally affected. A carbon tax is

complicated to place on carbon dioxide emissions, meaning that a fair tax rate cannot

be assigned.

On the other hand, the government can intervene by using a tradable permit to achieve

the same effect, tackling the climate crisis. The government provides a certain number

of permits, which firms can buy and sell. The number of permits dictates the particular

level of pollutants over a given time. The supply of the permits is perfectly inelastic

5
Candidate Number: jxv082 Session Number: 003295-0015

because the government fixes them. Additionally, for the policy to be effective, the

number of tradable permits has to be less than the amount of pollution without permits.

Firms that can reduce their pollutant levels lower than the permitted level will sell their

extra permits. In contrast to firms that have increased their level of pollutants higher

than the permitted level, that will have to purchase more permits.

From the diagram, the position of demand-for-permits depends on the equilibrium point

on the graph. As firms increase their production output, they would demand more

permits, as seen with the rightward shift in the demand curve from D1 to D2 while the

supply price increases from P1 to P2, with the supply of permits remaining fixed.

Like the carbon tax, this is designed to create incentives for producers to use less

polluting methods to reduce their costs. Furthermore, firms will be able to sell their

6
Candidate Number: jxv082 Session Number: 003295-0015

permits for a profit. Hence, tradable permits can also be used to reduce the number of

pollutants emitted.

In conclusion, although the carbon tax's advantages and disadvantages, in actuality, its

implementations are complicated, and there are other alternatives such as discussed

the tradable permits. These methods can also be implicated to achieve the same effect.

Hence, it depends on government decisions and the opportunity costs that are involved.

References

Blink, Jocelyn, and Ian Dorton. Oxford IB Diploma Programme: IB Economics

Course Book. Oxford University Press, 2020.

Schmitt, Kirsten Rohrs. “Carbon Tax Definition.” Investopedia,

https://www.investopedia.com/terms/c/carbon-dioxide-tax.asp. Accessed 18

January 2022.

7
 0

TITLE SINGAPORE TIGHTENS MONETARY

POLICY IN SURPRISE MOVE AS PRICE
PRESSURE GROWS

SOURCE https://www.reuters.com/world/asia-
pacific/singapore-central-bank-tightens-
policy-surprise-move-2021-10-14/

PUBLISHED October, 14th 2021

COMMENTARY WRITTEN December, 8th 2021

WORD COUNT 770 words

UNIT Macroeconomics

KEY CONCEPT Change

0
SINGAPORE, Oct 14 (Reuters) - Singapore's central bank unexpectedly
tightened its monetary policy on Thursday, delivering its first such move in three
years, amid mounting cost pressures caused by supply constraints and a
recovery in the global economy.

The city-state joins a group of economies globally that have begun to dial back
heavy pandemic-era monetary stimulus, as the threat of inflation outweighs the
growth risks posed by the coronavirus.

The central bank, which manages its policy through exchange rate settings, said
it would raise slightly the slope of its currency policy band, from zero percent
previously.

Irvin Seah, a senior economist at DBS, said the move was a result of growth and
inflation emerging out of a recessionary situation.

"This is a recalibration to be in line with economic fundamentals and I don't

foresee any further tightening unless we see upside risk in growth and inflation,"
he said.

Singapore, recovering from last year's record recession brought on by the

COVID-19 pandemic, is beginning to re-open its borders with 84% of its
population fully vaccinated against the virus. The economy is expected to grow
6–7% this year.

1
Only two financial institutions, including DBS, had expected a tightening, with 11
others predicting the Monetary Authority of Singapore (MAS) would stay on hold,
in a Reuters poll.

Instead of using interest rates, the MAS manages monetary policy by letting the
Singapore dollar rise or fall against the currencies of its main trading partners
within an undisclosed band.

It adjusts its policy via three levers: the slope, mid-point and width of the policy
band, known as the Nominal Effective Exchange Rate, or S$NEER.

The width of the band and the level at which it is centred will be unchanged, the
MAS said.

"This appreciation path for the S$NEER policy band will ensure price stability
over the medium term while recognising the risks to the economic recovery," the
MAS said in its statement.

The central bank expects growth to return to near its potential next year,
notwithstanding shocks like a resurgence in the virus or setback in economic
reopening.

It said core inflation, the central bank's favoured price measure, is expected to
rise to 1–2% next year, and nearly 2% in the medium-term.

It was the first tightening since October 2018. Most economists had expected the
MAS to only begin normalising policy in April 2022.

2
Raising the slope of the policy band effectively increases the value of the local
dollar in Singapore's trade-reliant economy, in theory making imports cheaper
and exports more expensive.

Policymakers across the globe are increasingly concerned about the effects of
surging materials costs, driven by supply chain bottlenecks and as economies
reopen from coronavirus lockdowns. read more

For 2021, the MAS expects core inflation to be near the upper end of the 0–1%
forecast range. The key price gauge rose by the fastest pace in more than two
years in August.

The Singapore dollar jumped about 0.3% after the policy announcement to a
three-week high of S$1.3475 per dollar, before easing slightly to S$1.3490.

Bank of Singapore analyst Moh Siong Sim said the shift was a "hawkish
surprise," but modest enough to keep a lid on the currency.

"It's starting baby steps towards policy normalisation, but makes sense given
rising global inflation backdrop," he said.

The MAS expects growth in the bellwether Singapore economy to remain above
trend in the quarters ahead.

"At the same time, external and domestic cost pressures are accumulating,
reflecting both normalising demand as well as tight supply conditions," it said.

3
Preliminary data on Thursday showed Singapore's economy grew 6.5% in the
third quarter, broadly in line with economists' forecasts. read more

The MAS said GDP growth should register a slower but still-above trend pace in
2022.

"I think there's a 50-50 chance MAS will also tighten in April because they are
doing a very slow and gradual process of tightening, so they may tighten slightly
again," said Jeff Ng, an economist at HL Ba

Commentary

This article talks about the tightening of Singapore’s monetary policy by its central bank
due to mounting cost pressures caused by supply constraints and a recovery in the
global economy. This has not happened in the last three years according to the article.
This commentary will focus on the impact of this policy as it affects the Singapore
economy. The central bank is the intuition that is able to intervene because they are
responsible for controlling the monetary policy.

Monetary policy is defined as the set of government policies that relate to the money
supply and the level of interest rates in an economy. Governments can use
expansionary or deflationary monetary policies to affect aggregate demand in the
economy. An exchange rate is the value of a country’s currency against that of another
country or economic zone (as cited in “Exchange Rate Definition).

4
When the government undergoes a deflationary monetary policy, this will shift the
aggregate demand curve towards the left from AD1 to AD2. This leads to numerous
economic outcomes. There will be deflationary pressure as the average price level falls
from P1 to P2, which means a decrease in national income, a fall in economic growth,
and a decrease in economic growth. There are numerous advantages of monetary
policy; the exchange rate is set by the central bank so it can be adjusted easily and
readily if needed. In some countries, the central bank is independent and not easily
influenced by the government so the central bank will be able to intervene and
implement changes to the exchange rate which might be unpopular by the government.

Lastly, another advantage of the monetary policy is the ability to make some changes; it
enables “fine-tuning” of the economy as it is able to make precise towards achieving
exact targets. However, there are limitations to implementing a monetary policy.
Monetary policy takes time before it has an impact on the economy and could take
months before the effect is seen. Furthermore, if consumer and business confidence is
low in the economy even if the exchange rate is lowered then the effect on their
expenditure will be little.

In the short term, implementing a deflationary monetary policy will be beneficial for the
economy. It will decrease the national income and real income of consumers and
businesses in the economy. This is causing consumers to have less disposable income
meaning their expenditure will be decreased, hence they will spend(demand) less on
goods and services. For businesses, they will have less money to invest in the economy

5
which will lead to a fall in the output for the economy. Overall, this will lift the burden on
suppliers by fixing supply constraints.

In the long term, a deflationary policy causes deflationary pressure. Deflation leads to a
persistent fall in the general price. Deflation will lead to unemployment; because of the
fall in aggregate demand, firms will start to lay off workers leading to even more
deflation. Additionally, because of the continuous fall in price, consumers’ demand will
fall because they will put off spending on goods and services as they expect the price to
fall. Overall, in the long term, it might lead to a deflationary spiral.

An alternative for the monetary policy will be fiscal policy. Fiscal policy is a policy
relating to government expenditure and taxation.

When the government undergoes a deflationary fiscal policy, this will shift the aggregate
demand curve towards the left from AD1 to AD2. This leads to numerous economic
outcomes. There will be deflationary pressure as the average price level falls from P1 to
P2, which means a decrease in national income, a fall in economic growth, and a
decrease in economic growth.

The main advantage of fiscal policy is it’s effective in the long term. Additionally, in
targeting specific sectors of the economy government expenditure can be used.
However, in most cases, it is not possible to target specific targets as government

6
expenditure and taxation are large and the desired outcome can’t be predicted because
it affects changes in expenditure or taxation have a large impact on various aspects of
the economy.

Furthermore, the short and long-term of fiscal policy are similar to monetary policy.

In conclusion, a deflationary monetary policy would be suitable because it would be

effective in reducing the supply and thus alleviate the supply constraints and help in
improving the economy of Singapore.

References
Scott, Gordon. “Exchange Rate Definition.” Investopedia,

https://www.investopedia.com/terms/e/exchangerate.asp. Accessed 25

November 2021.

7
8
 TITLE U.S. moves to double tariffs on Canadian
softwood lumber imports

SOURCE https://www.cbc.ca/news/canada/calgary/t
arrifs-softwood-lumber-may-2021-us-
canada-1.6037224

PUBLISHED May, 21st 2021

COMMENTARY WRITTEN 29th January, 2022

WORD COUNT 800 words

UNIT Free Trade and Protectionism

KEY CONCEPT Interdependence

Article

U.S. moves to double tariffs on Canadian

softwood lumber imports
Change would cut into producers' profits but unlikely to affect prices for
consumers, analysts say

Dan Healing · The Canadian Press · Posted: May 21, 2021 6:34 PM MT | Last Updated: May 22,
2021

A move by the U.S. Commerce Department to increase preliminary tariffs on softwood

lumber imports from Canada, if finalized, will raise producer costs and cut into their
profits but is unlikely to affect prices to consumers of wood products, analysts say.

The department's recommendation to more than double the "all others" preliminary
countervailing and anti-dumping rate to 18.32 per cent from 8.99 per cent on Friday
drew criticism from the Canadian government and industry and applause from the
lumber industry south of the border.

The increase is unlikely to result in higher lumber prices because they've more than
doubled in the past year to all-time record highs, said Kevin Mason, managing director
of ERA Forest Products Research.

"Prices are supply-and-demand driven," he said. "(Tariffs) drive the cost up for
producers but it's not going to affect prices."

Because it's a preliminary tariff rate, current cash deposit rates will continue to apply
until the finalized rates are published, likely in November.

"U.S. duties on Canadian softwood lumber products are a tax on the American people,"
said Mary Ng, minister of Small Business, Export Promotion and International Trade, in
a statement.

"We will keep challenging these unwarranted and damaging duties through all available
avenues. We remain confident that a negotiated solution to this long-standing trade
issue is not only possible, but in the best interest of both our countries."

In a note to investors, RBC analyst Paul Quinn said finalized rates from the previous
administrative review process wound up being largely in line with the preliminary rates.

"We think higher rates will incentivize producers to push harder for a resolution to the
softwood lumber dispute, which could unlock significant cash," he said, noting an
estimate that collected tariffs from Canadian producers on deposit add up to more than
$4 billion.

Varied impact
Friday's rates applied to individual companies vary in impact, he said, with West Fraser
Timber Co. Ltd. up slightly to 11.4 from nine per cent, Canfor Corp. up to 21 from 4.6
per cent, Resolute Forest Products Inc. jumping to 30.2 from 20.3 per cent, and J.D.
Irving up to 15.8 from 4.2 per cent.

Former president Donald Trump's administration imposed a 20 per cent "all others" tariff
on Canadian softwood in 2018, before the onset of the COVID-19 pandemic, but

1
lowered it to about nine per cent late last year after a decision favouring Canada by the
World Trade Organization.

The increased tariffs will hurt American consumers who are faced with a market where
supply can't keep up with demand, said Susan Yurkovich, president of the BC Lumber
Trade Council.

"We find the significant increase in today's preliminary rates troubling," she said in a
news release.

"It is particularly egregious given lumber prices are at a record high and demand is
skyrocketing in the U.S. as families across the country look to repair, remodel and build
new homes.

"As U.S. producers remain unable to meet domestic demand, the ongoing actions of the
industry, resulting in these unwarranted tariffs, will ultimately further hurt American
consumers by adding to their costs."

She called on the U.S. industry to end its decades-long campaign alleging Canadian
lumber is unfairly subsidized and instead work with Canada to meet demand for "low-
carbon wood products" the world wants.

In a separate news release, Jason Brochu, U.S. Lumber Coalition co-chair, applauded
the Commerce Department's commitment to enforce trade laws against "subsidized and
unfairly traded" Canadian lumber imports.

The coalition says the U.S. industry remains open to a new U.S.-Canada softwood
lumber trade agreement "if and when" Canada demonstrates it is serious about
negotiations.

2
Commentary

This article talks about a move by the U.S. Commerce Department in increasing the
preliminary tariffs on softwood lumber imports from Canada. The economic actors are
interdependent; the consumers, producers and government will affect producers’ costs
and profits; however, it might not affect consumer prices. This commentary will focus on
the impact of this tariff on the economies of both countries. A tariff is a tax that is
charged on imported goods. The tariff shifts the world supply curve upwards as it is
placed on foreign producers.

When the government introduces the tariff, OQ2 tons of softwood are consumed at a
price of Pw. Domestic production was OQ1 and imports were Q1Q2. When the tariff is
imposed, S(World) shifts up by the amount of the tariff to S(World) + tariff, and so the
market prices from Pw to T. Total quantity demanded falls from OQ2 to OQ4 because of
rising prices. The importer will have to pay a high price for the imported goods.
Domestic producers increase production to OQ3, so their revenue increases from g to g
+ a + b + c + h. Foreign producers supply the rest, which is Q3Q4. They receive Pw to T
but have to pay the tariff to the government. Thus the revenue falls from h+i+j+k to only i
+ j. The government receives tariff revenue of d + e.

3
There are effects of introducing the tariffs, one of which is preventing dumping by the
Canadian producers as claimed by the U.S. government. Tariffs are an anti-dumping
measure. It is intended to raise the prices of imported goods and eliminate the cost
advantage of the dumped imports. However, there is a deadweight loss in this tariff in
the form of a loss in consumer surplus. After the tariff, Q1, and Q3, tons of softwood are
now being produced by relatively inefficient domestic producers instead of the more
efficient foreign producers. Foreign farmers would produce this quantity for a minimum
revenue of h, whereas the domestic producers need a minimum revenue of h + c. The c
represents the inefficiency occurring from domestic production and a loss in world
efficiency, as more of the world’s resources are being used to produce than are
necessary.

Additionally, implementing a tariff causes an increase in prices for consumers and

producers of imported goods and suggests an interdependence between producers
and consumers. For the case of Canadian softwood, it means that U.S. families who
use softwood to repair, remodel, and renovate would have to pay higher prices for lower
quantities supplied of softwood despite the increase in demand. With the tariff, the
quantity of softwood imported has been limited, which has to be replaced with domestic
producers. This would mean less choice for producers and thus would reduce the
quantity of softwood available to consumers as it cannot be solved with imports.
However, the consumers’ demand for softwood would increase. Because U.S.
producers will be unable to meet consumers caused of the tariffs will negatively impact
U.S. consumers by increasing their costs and limiting the quantity of softwood available
to them.

Furthermore, the tariff would make U.S. producers uncompetitive, as competition would
diminish if foreign producers are not in the country. Hence, domestic firms would
become inefficient because they do not have an incentive to limit costs. Additionally, the
export competitiveness of domestic firms would be reduced.

On the other hand, another reason for the government to intervene by introducing this
tariff is environmental reasons. The U.S. might desire to introduce these tariffs to
impose environmental standards on the softwood imported into the country to ensure
the imports meet the standards of their domestic products. The protection of these
standards seems valid because it aims to better collaborate with Canadian producers to
ensure that demands for “low-carbon wood products” are demanded by the world. This
would mean that environmental standards are being met and benefit the environment.
However, the tariffs have an ulterior motive, with U.S. producers alleging that Canadian
wood is “subsidized” and “unfairly traded.”

4
In conclusion, it stands to say that consumers and producers stand to lose more as they
would have less access to the quantity supplied of softwood, they would have fewer
choices of softwood they can purchase, and would have to pay higher prices for low
quantities of softwood. However, U.S. producers will be protected from foreign
competition. Additionally, the U.S. Society will be severely impacted by production
inefficiency; most of the production will be done by domestic producers with higher
production costs than foreign producers. This will lead to a decrease in competitiveness
and allocative inefficiency. The global economy also stands for loss as there is a
misallocation of resources and existing efficiency. The government stands to gain
revenue, but international relations will suffer.

Works Cited

Dorton, Ian, and Jocelyn Blink. Oxford IB Diploma Programme: IB Economics

Course Book. Oxford University Press, 2020.

“Effect of tariffs.” Economics Help,

https://www.economicshelp.org/blog/glossary/tariffs/. Accessed 31 January 2022.