Evaluation of the UK's Proposed Ban on Petrol and Diesel Car Sales

This economics report evaluates the UK's proposed policy to ban the sale of new petrol and diesel cars. The report identifies the policy as a command and control approach and aims to reduce carbon emissions and address market failures related to negative externalities from the transport sector. It explains negative production and consumption externalities, illustrating them with diagrams, and discusses the policy's pros and cons, including its cost-effectiveness and potential inflexibility. The report analyzes lessons from Norway's adoption of electric vehicles and uses demand and supply diagrams to assess the effects on related markets, such as rechargers and oil. In conclusion, the report suggests that the policy could play a significant role in reducing CO2 emissions.

ECONOMICS ASSIGNMENT
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Introduction
This paper is aimed at evaluating the effectiveness of the policy that the UK ministers
have proposed to bring forward on concerning a ban on new diesel and petrol sales. In addition,
the paper illustrates the type of policy to be forwarded whether it is a market based or command
and control. Also, the aim 1of the policy will be evaluated and its impacts on the reduction of
carbon emissions to the environment. The market failure and its causes will also be explained in
the paper. The paper will also analyze the various negative externalities and their effects on the
society and the producers.
Thesis statement
The sale of new petrol and diesel cars should be banned
Policy description
For the purpose of this paper, the policy that the UK minister forward in order to ban the
sale of new petrol and diesel cars is command and control policy. In this case, the policy sets a
given limit for air pollution caused by petrol and diesel cars. By banning the use of Petrol and
diesel cars, the law aim s at pointing out other alternatives that can be used apart from petrol and
diesel cars. Therefore, the policy is aimed at encouraging the use of electric cars which don't emit
dangerous air into the atmosphere, this can help in improving the green environment. The major
1Mancinelli SAntonioli D and Mazzanti, M. Is environmental innovation embedded within high-
performance organizational changes? The role of human resource management and
complementarity in green business strategies. Research Policy, 2013. 42, 975–988.

3
aim of the policy is to reduce the amount of carbon emission into the atmosphere which leads to
changes in the climate. Recent statistics indicate that thirty-seven out of forty-three zones in the
UK still possess illegal amounts of nitrogen dioxide, this is a harmful gas with illegals levels and
comes from the use of diesel vehicles. In addition, the official data from the UK released in 2017
indicate that the greenhouses gases in the area reduced by 2.7% as compared to the past years.
Therefore, the Climate Change Act of UK, the state is supposed to reduce the levels of emission
at least by 80% by 2050. In this case2, it is noted that the policy identified is an example of
market failure because the transport sector to which the policy is going to affect is associated
with carbon emission. In simple terms, a market failure is referred to as an economic situation
that is associated with the inefficient distribution of services and goods in any free market
economy. Markets3 failures always result from; externalities such as pollution, public goods such
as cars, and many others. For this case, the identified is aimed at addressing negative
externalities such as diesel and petrol cars.
Negative production externalities
2Cave MBaldwin R and Lodge M. Understanding Regulation: Theory, Strategy, and Practice.
2nd ed. Oxford: Oxford University Press.2011
3Söderholm K andBergquist A-K. “The Formation of a Green Innovation System in Swedish
Industry 1960-1989,” Business History Review. 2012. Winter, pp. 677-698.

4
Negatives externalities are major effects that result from consumption and production for
where no compensation is given. Negative production externalities refer to the side-effects that
result from different production activities. In this case, it is noted that externalities fall outside
the current market price or transaction. An example 4of negative production externalities include
external costs of diesel used in cars and endanger the lives of people and the green environment.
Therefore5, the use of diesel will lead to the emission of the dangerous substances which pollute
the atmosphere then cause harm to the health of people. At this moment, the marginal social Cost
exceeds Marginal Private cost. As a result of the increased supply curve, the consumption of the
product increases.
4Boucher, M. A theoretical framework for explaining the choice of instruments in environmental
policy. "Forest Policy and Economics'. Elsevier.2012.
5 GlaeserEdward, Triumph of the City: How Our Greatest Invention Makes Us Richer,
Smarter, Greener, Healthier and Happier.2011.

5
Figure 1: Negative production externalities
Source: https://www.dineshbakshi.com/a-level-economics/government-microeconomic-
intervention/revision-notes/535-negative-production-externalities
Explanation: The diagram 6above indicates a negative production externality. The figure
above indicates the supply curve indicated by MPC, this reflects the private costs of the firm
incurred in production, and the Marginal social cost curve is represented by MSC which indicate
the whole production cost to the society. The vertical differences that exist between MSC and
6Pontoglio Sand Kemp R. “The Innovation Effects of Environmental Policy Instruments – A
Typical Case of the Blind Men and the Elephant,” Ecological Economics,2011.Vol. 72, pp. 28-
36

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MPC indicate a negative externality. Therefore for each output of Q1, social costs are
represented by MSC, which are higher than the private costs of the firm by the level of
externality. In case the output of the market is greater than the "social optimum", a market
failure is experienced. The market failure created as a result of negative production externalities
leads to deadweight loss and inefficiency. In most cases7, the market failures lead to the reduced
production of the product as a result of the low purchase of the good by the consumer. This
means that producers will not be in the position to produce more of the goods when the demand
is low. As a result of the imbalance between demand and supply, a deadweight loss occurs. Also,
the imbalance of goods in the market as a result of market failure leads to market inefficiency.
For example, overvalued products lead to overproduction but negatively affect the society as a
result of the externalities created by the product for example cars.
Negative consumption externalities
For a negative 8externality, it occurs as a result of the consumption of a given service or
product. For example driving a diesel car, by driving a diesel car, the consumers create a
negative externality you to the environment by emitting the dangerous substances.
Anotherexample can be smoking, if an individual smokes in public, he or she creates negative
externalities to the society in the form of "passive smoking."
7Molina-Azorín J.F López-Gamero M.D andClaver-Cortés E. The potential of environmental
regulation to change managerial perception, environmental management, competitiveness, and
financial performance. J. Clean. Prod,2010, 18, 963–974
8Campbell R McConnell et al. Economics. Principles, Problems and Policies (PDF) (18th ed.).
New York: McGraw-Hill. ISBN 9780073375694. Archived from the original (PDF contains full
textbook) on 2016-10-06

7
Figure 2: Negative consumption externalities
Source: https://www.dineshbakshi.com/a-level-economics/government-microeconomic-
intervention/revision-notes/536-negative-consumption-externalities
According to the figure above, the MPB does not reflect the social benefit making MSB
become fall under MPB. In this case, the difference between MSB and MPB is the negative
consumption externality. Also, when MSC=MSN, it indicates an optimal consumption rate.
However, the negative consumption externality is ignored leading to over-consumption of goods
(López-Gamero 2010). The negative 9consumption externalities create a market failure due to the
9Nakanishi, H.; Black, J. Social sustainability issues and older adults’ dependence on
automobiles in low-density environments. Sustainability, 2015, 7, 7289–7309.

8
effects created by the consumer to the environment such as pollution. In turn, a 10market failures
result in a deadweight loss and inefficiency that affects both the consumer and the producer of
the goods. In this case, a deadweight happens if the consumers do not feel the price of the
product and this will lead to reduced consumption of the products. In addition, as a result of
government regulation and policies, the consumers will not be in the position to purchase a given
product hence resulting in the imbalance between demand and supply. As a result of the reduced
rate of trade, the allocation of different resources may also become inefficient leading to the
reduced overall welfare of the society.
Pros of implementing the policy
The implementation of the policy has a number of benefits to both the society and the
government such as; first, it is cost-effective, the implementation of the ban on the sale of diesel
and petrol cars by the government will not be so costly as compared to the use of other policies
that require government spending and effective monitoring. The policy will effectively reduce
the level of pollution minus the government incurring high costs. Therefore, the policy will
reduces the effects created by the negative consumption externalities and CO2 emissions minus
affecting the government’s revenue.
Last, effectiveness, the policy is aimed at completely wiping out the use of diesel and
petrol that result in the emitting of poisonous air to the atmosphere. In this case, the policy aims
at reducing the negative consumerexternalities of pollution. Unlike other policies which require
10Perez-Carmona, Alexander. "Growth: A Discussion of the Margins of Economic and Ecological
Thought". In Meuleman, Louis, ed. (ed.). Transgovernance. Advancing Sustainability
Governance (Article accessible at SlideShare)|format= requires |url= (help). Heidelberg:
Springer, 2013, pp. 83–161.

9
giving permits to car users as a way of regulating their command and control policy aims at
ensuring that the society is free from all sorts of externalities such as pollution
Cons of implementing the policy
However, the implementation of the policy may not be effective hence have the following
disadvantages; first, the policy does not provide an incentive that can be adopted to improve the
nature of the environment apart from the standard indicated law. Once the policy has been
implemented, polluters will not have any means of doing better.
Last, the policy is not flexible, in this case, the command-and-control policy requires
similar standards for all the environment polluters and also similar control technology. This
indicates that the policy does not draw any distinction between the people who may find it
complicated and expensive to adhere to the new pollution standards. This makes it difficult for
the users of the product and the producers to copy up with the new policy as they are not given
an option of finding other means of reducing pollution.
Lessons can we learn from countries like Norway about the adoption of electric vehicles
The implementation of using electric Vehicles by the government of Norway can be
depended on to understand the effectiveness of the new system or innovation. In this case, it is
observed that the electronic vehicles become the most preferred choices that every customer
wanted to try. This led to the high 11purchase of cars within a short period of time. This means
that electronic cars were widely adopted by most people in Norway. Also, the demand for
electric power has increased in the short run as a result of the high purchases of electric cars.
11Söderholm K. “Environmental Awakening in the Swedish Pulp and Paper Industry: Pollution
Resistance and Firm Responses in the Early 20th Century,” Business Strategy and the
Environment, 2009. Vol. 18, No. 1. pp. 32-42

10
Demand and supply diagrams to assess the effects on related markets
Using the demand and supply 12diagram, we shall be in the position to assess the effects
on the market of two related markets that is to say; rechargers and oil. These two related markets
can also be known as substitute goods that can be used for a similar purpose. Therefore, the
consumption of the other may affect the demand for another product. In addition, consumers
have an alternative choice for the products. In case, the price of one product increases say oil, its
demand reduces and people purchase more of the rechargers.
Figure 3: Demand and supply curve for substitutes
Source: https://www.economicshelp.org/blog/glossary/substitute-goods/
In the diagram above, the fall in the price of rechargers led to an increase in the
consumer's demand and an increase in the price of oil led to a fall in demand.
Conclusion
12Igel B& Vanichchinchai A.; The impact of total quality management on supply chain
management and firm’s supply performance. Int. J. Prod. Res, 49, 2012. 3405–3424.

11
In summary, the implementation of the policy on the sale of new diesel and petrol cars
may play an important role in reducing the emission of Co2 into the environment. In case, the
ban has enacted the effects of negative externalities will be addressed in the UK. In addition, the
implementation of the policy will give rise to other related products such as electric vehicles.
References
Antonioli, D.; Mancinelli, S.; Mazzanti, M. Is environmental innovation embedded within high-
performance organizational changes? The role of human resource management and
complementarity in green business strategies. Research Policy, 2013. 42, 975–988.
Baldwin, R., Cave, M., Lodge, M.Understanding Regulation: Theory, Strategy, and Practice.
2nd ed. Oxford: Oxford University Press, 2011
Bergquist, A-K., and K. Söderholm. “The Formation of a Green Innovation System in Swedish
Industry 1960-1989,” Business History Review. 2012. Winter, pp. 677-698.
Boucher, M. A theoretical framework for explaining the choice of instruments in environmental
policy. "Forest Policy and Economics'. Elsevier.2012.
Edward Glaeser, Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter,
Greener, Healthier and Happier.2011.

12
Kemp, R., and S. Pontoglio. “The Innovation Effects of Environmental Policy Instruments – A
Typical Case of the Blind Men and the Elephant,” Ecological Economics,2011.Vol. 72,
pp. 28-36
López-Gamero, M.D.; Molina-Azorín, J.F.; Claver-Cortés, E.2010. The potential of
environmental regulation to change managerial perception, environmental management,
competitiveness, and financial performance. J. Clean. Prod,2010, 18, 963–974
McConnell, Campbell R.; et al. Economics. Principles, Problems and Policies (PDF) (18th ed.).
New York: McGraw-Hill. ISBN 9780073375694. Archived from the original (PDF
contains full textbook) on 2016-10-06
Nakanishi, H.; Black, J. Social sustainability issues and older adults’ dependence on
automobiles in low-density environments. Sustainability, 2015, 7, 7289–7309.
Perez-Carmona, Alexander. "Growth: A Discussion of the Margins of Economic and Ecological
Thought". In Meuleman, Louis, ed. (ed.). Transgovernance. Advancing Sustainability
Governance (Article accessible at SlideShare)|format= requires |url= (help). Heidelberg:
Springer, 2013, pp. 83–161.
Söderholm, K. “Environmental Awakening in the Swedish Pulp and Paper Industry: Pollution
Resistance and Firm Responses in the Early 20th Century,” Business Strategy and the
Environment, 2009. Vol. 18, No. 1. pp. 32-42.
Vanichchinchai, A.; Igel, B. The impact of total quality management on supply chain
management and firm’s supply performance. Int. J. Prod. Res, 49, 2012. 3405–3424.