TJC H2 ECON P1

TEMASEK JUNIOR COLLEGE Preliminary Examination 2011 General Certificate of Education Advanced Level Higher 2 ECONOMICS Paper 1 9732/01 Wednesday 14 September 2011 2 hours 15 minutes Additional Materials: Answer Paper READ THESE INSTRUCTIONS FIRST Do not turn over until you are told to do so. Write your name and CG number 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. Answer all questions. Begin each question on a separate sheet of answer paper. At the end of the examination, fasten your work for each question separately. Hand in your answer to each question separately. The number of marks is given in brackets [ ] at the end of each question or part question. This document consists of 7 printed pages. © TJC 2011 [Turn Over]

2 Answer all questions. Question 1 The Energy Market Figure 1: Fuel vs Non-Fuel Cost Components in Electricity Tariff (Price) www.ema.gov.sg Note: The fuel cost or the cost of imported natural gas is tied to the price of fuel oil by commercial contracts The non-fuel cost reflects the cost of generating and delivering electricity to our homes. Extract 1: Singapore Electricity Market Underscoring the importance of freeing up the electricity market, Minister for Trade and Industry Lim Hng Kiang said that this 'has always helped keep power prices low'. And this is why competitive markets will remain 'a cornerstone' of Singapore's energy policy, added Mr Lim, who was at the opening of the Singapore Electricity Roundtable at the Raffles City Convention Centre. About a decade ago, the Public Utilities Board was the sole provider of all electricity services in Singapore. The Government then restructured the industry, separating the generating of power from its distribution and also from the sale of power by the electricity retailer to the end consumer. The business of power generation was first liberalized and this saw the establishment of several privately owned power generation companies such as Tuas Power and PowerSeraya. These companies were free to choose their own means of generating power. And the diversification of energy sources led to lower electricity bills as generation companies looked for more energy- efficient means of power production, explained Mr Lim. So far, businesses - which account for about 75 per cent of Singapore's total energy consumption - have been reaping the most gains fr om competition. This is because they can

3 buy their power directly from power co mpanies, whereas Singapore households (in the non- contestable market) must buy their power from one electricity retailer: SP Services. The next stage of liberalisation will therefore allo w consumers to buy from retailers other than SP Services. If successful, the project will see six retailers hitting the market with more competitive prices, spelling lower bills for users. Allowing for multiple retailers will give consumers the ability to pick the electricity plan best suited to their needs, just like picking a mobile phone plan. Source: The Straits Times 13 Nov 2007 Extract 2: Malaysia Raises Electricity Tariffs Saddled with a ballooning subsidy bill, the Malaysian government announced electricity tariffs will go up by an average of 7 per cent from June 1. Many Malaysians are concerned about the increase, despite the assurance that 75 per cent of domestic users will be spared from the tariff hikes. "I think it is a bit optimistic; I think most people will be affected by the price increase." said one Malaysian. "Although they increase one cent or two cents, it affects everything in our country," commented another. Economists are predicting inflation to breach 4 per cent in June, the highest in more than two years. Commercial and industrial users, they said, will bear the brunt of the increase, particularly exporters that are already hurt by a stronger ringgit that has appreciated nearly 15 per cent against the greenback since last year. Dr Yeah Kim Leng, chief economist at RAM Rating Services said: "The last increase was about 6 months ago, and they have committed to review in every 6 months. In our view it has to be more frequent given the volatility of the world oil prices, but nonetheless I think we are looking forward. It is better to face the challenge now and bear the pain in the short term so we have a longer term gain. The question now is to balance the economic needs with the political realities.” Source: Intellasia Channel News Asia 02 Jun 2011 Extract 3: Is it time to overhaul Europe’s carbon trading scheme? When it was launched in 2005, the European Union's Emissions Trading Scheme (EU ETS) was hailed as a major step forward in the fight against climate change. Covering 12,000 power plants, factories, and other industrial facilities, it was the world's largest cap-and-trade project to date. EU officials saw it as the first of many carbon-pricing schemes that would eventually cover the globe. Six years later that vision is looking a little clouded. With the EU ETS accused of failing to reduce carbon emissions and critics charging that the carbon-trading mechanism has opened the door to fraud and profiteering by participants, serious questions have arisen about the future of the EU's grand emissions plan. As EU members debate the parameters of the next phase, from 2013 to 2020, campaigners are calling for fundamental reforms, or for the EU ETS to be scrapped. Groups such as Friends of

4 the Earth describe carbon trading as a "distraction," and argue that other measures, such as carbon taxes, would be more effective and less susceptible to abuse. In 2010, 65 percent of EU ETS sites had more permits than they needed according to Sandbag, a London-based group that monitors emissions trading. The effect has been to depress carbon prices — reducing the incentive to invest in cleaner technologies — and lessen the downward pressure on emissions. To tighten up on allowances, the European Commission has suggested reducing the number of future emissions permits or creating a new target of cutting emissions 30 percent below 1990 levels by 2020. Despite such moves, a growing number of academics argue that Kyoto-era solutions such as carbon trading have had their day. Source: Yale Environment 360 guardian.co.uk 28 April 2011 Questions (a) (i) Describe the changes of electricity tariff from 2006 to 2010. [2] (ii) Suggest two possible factors that could have helped cushion electricity tariff against a hike in oil prices. [2] (b) (i) Explain why Singapore electricity market was restructured. [4] (ii) Assess the impact of the restructuring on domestic firms and households. [4] (c) Electricity tariffs should be allowed to rise so that the Malaysian economy bears the “short term pain for long term gain”. Discuss. [8] (d) In extract 3, an environmental group argued against carbon trading and supported other measures such as carbon taxes to reduce carbon emissions. Do you agree with their views? [10]