JJC H1 Economics QP

JURONG JUNIOR COLLEGE PRELIMINARY EXAMINATION 2014 ECONOMICS Higher 1 8819/01 1 September 2014 3 hours READ THESE INSTRUCTIONS FIRST Write your name and class on all the work you hand in. Write in dark blue or black pen on both sides of the paper. You may use a soft pencil for any diagrams, graphs or rough working. Do not use staples, paper clips, highlighters, glue or correction fluid. Section A Answer all questions. Section B Answer one question. Start each question on a new piece of paper. Fill in the necessary information on the cover sheet. At the end of the examination, fasten all your work securely with the cover sheet at the top. The number of marks is given in brackets [ ] at the end of each question or part question. This document consists of 8 printed pages. [Turn Over

2     Section A Answer all questions in this section Question 1 Use of Shale Gas in UK and Environmental Issue Extract 1: Global market is pushing up gas prices UK energy bills are set to go up by 2020 as the country becomes more dependent on imported gas, says energy regulator Office of Gas and Electricity Markets (Ofgem). In 2009, 45% of the natural gas used in the UK was imported, and this figure is expected to reach 69% by 2019. This growing dependence on imports makes it vulnerable to shifts in supply and demand, as well as shocks in supply countries. The recent power outage at a Norwegian gas plant was the main reason for the price jump, further exacerbated by a leaking crude oil pipeline in Scotland blocking the supply of natural gas from fields further up the production chain. According to Ofgem, while UK needs more gas, world demand for gas is set to rise while domestic supplies are predicted to fall by another 28% by 2020. Asia is set to become the fastest-growing gas consumer. China's consumption alone will grow at 20 per cent per year as the country experience rising GDP growth. So without measures to reduce dependence on imported gas, higher prices are inevitable. Clare McNeil, PPR's senior research fellow tells Carbon Brief that exposure to volatile international energy prices would be a real problem for consumers, particularly households on low incomes who cannot afford the extra costs. Between 2011 and 2012, domestic gas bill has increased by 11.8% when the price of gas rose by 13.1%. S o u r c e : The Carbon Brief, 19 February 2012 Extract 2: Carbon pollution Experts from three climate bodies conclude there are sound reasons to burn natural gas instead of coal in the country's power stations in the s hort term. The reason is that gas-powered plants emit less than half the carbon dioxide per kilowatt hour of coal-fired stations. Of all the greenhouse gases that scientists say are heating the planet to potentially dangerous levels, carbon dioxide is the main one caused by both industrial and human activities. S o u r c e : Financial Times, 18 March 2013 Extract 3: A carbon tax by any other name The headlines last week were dramatic: Australia abandons its carbon tax. The move seemed to confirm suspicions that putting a price on carbon dioxide emissions is politically toxic. By next July, the country will shift from its controversial carb on tax system to a cap-and-trade system, which is a different way of limiting greenhouse gas emissions. Carbon taxes control emissions by establishing a fixed price that polluters must pay. High prices discourage pollution. By contrast, cap-and-trade systems limit amounts of carbon emissions, leaving the market to determine the price for polluting. Economists and policy makers like to argue over which method is best. But both seek the same goal.

3     Although carbon taxes, with their fixed prices, are easier to implement than cap-and-trade systems, but critics of Australia’s announcement, who include the country’s Green Party, have a point. Switching to the cap-and-trade system will allow Australian industries to pay less to reduce pollution. That is because the trading system, un like the tax, will link into a similar system in Europe. In Europe, abundant pollution permits have dramatically reduced the market price of carbon emissions. Hence, Australian industries w ill be able to take advantage of those low prices to access the pollution credits more cheaply, and ahead of schedule. Another key question raised by Australia’s situation is whether the concept of a carbon tax is too politically treacherous for nations seeking to combat climate change. The Australian government price carbon at A$23 per ton in July 2011. Despite the fact that the tax does not cover agricultural and fuel used by passenger and light commercial vehicles which constitute a total of 30% of carbon emissions in the country, airlines, miners and industries warned that the tax would force major industry to slash production and jobs. Polls have shown voters are resistant to the tax, which is expected to raise consumer prices by 0.7%. In Australia now, “it will be possible for the government to say that it has removed a ‘tax,’ and avoid the unpopularity of that word,” Mr. Pannell said. “The opposition is arguing that the new system will still be effectively a tax by another name. But the political effect of their arguments is diminished.” S o u r c e : New York Times ,24 July 2013 Extract 4: UK cannot afford to miss out on shale gas There will not be "a lot more" onshore wind turbines in the UK, David Cameron has said, as he signaled that hundreds of gas fracking wells could be drilled across the country. If we don’t back this technology, we will miss a massive opportunity to help families and businesses with their bills and make our country more competitive. Without it, we could lose ground in the tough global race. In fact, one recent study predicted that 74,000 jobs could be supported by a thriving shale-gas industry in this country. It's not just those involved in the drilling, there would be a whole supply chain of new busine sses, more investment and fresh expertise. A similar shale gas boom to the one in the US has transformed the country’s energy landscape, driving down gas prices and prompting hopes of energy independence. Cameron further said that he would never sanction something that might ruin their landscapes and scenery. Shale gas pads are relatively small – about the size of a cricket pitch and international evidence shows there is no reason why the fracking process should cause contamination of water supplies or other environmental damage, if properly regulated. And the regulatory system in this country is one of the most stringent in the world. If any shale gas well were to pose a risk of pollution, then we have all the powers we need to close it down. But pursuing a new “dash for shale gas” policy in the UK could be dangerous in the long term as it could discourage low carbon investment. Hence, it would make it harder – and more expensive – to meet the UK’s mandatory 2050 target of cutting greenhouse gases by at least 80 per cent from 1990 levels. According to the New Scientist, it says that if the UK's shale gas reserves are not as large as Chancellor Cameroon thinks, UK could be locked into a carbon intensive strategy that remains vulnerable to rising gas import prices. To provide the UK with greater energy security, investment in renewable technologies should not be neglected. Source: The Telegraph, 11 August 2013 and Financial Times, 18 March 2013 [Tu