By Ayan Banerjee
Without a doubt, you have some type of battery close to you as you’re reading this. Be it the battery in your laptop or phone or the AA’s in a torch. Our reliance on this technology is set to increase rapidly as countries and individuals race to become greener.
The shift to renewable energy sources such as solar or wind is incentivising governments to invest in grid-based energy storage systems. Presently, most grids operate on a second-by-second supply to meet demand which is possible by the flexibility of fossil fuels in changing the power delivered at any time. However, the intermittent nature of most renewable energy sources means the same approach would lead to widespread power cuts and overloads as supply would rarely match demand at any time. Therefore, large-scale batteries offer a storage for energy to be deposited when excess is being produced and drawn from when there is a supply deficit, therefore, eliminating any supply issues.
This all sounds very complicated to run; does it actually work in reality? This is where South Australia provides a useful case study. By most accounts, the world’s largest battery installed by Tesla in 2017 has been a great success. A region of the world previously plagued with astronomically high electricity prices has seen the major price drops since the battery was brought online. It was also a financial success, earning AU$23.8M in the first half of 2018 spurring the investment in future international battery uptake. This combined with electrification of other industries such as the car industry is set to increase the demand of batteries significantly over the current century. Therefore, for something produced on this scale, we must heavily scrutinise its sustainability.
In May 2016, thousands of dead fish were plucked from the waters of the Liqi river, where a toxic chemical leak from the Ganzizhou Rongda Lithium mine had wreaked havoc within the local ecosystem. Some eyewitnesses reported seeing cow and yak carcasses floating downstream, dead from drinking contaminated water. It was the third such incident in the space of seven years in an area which has seen a sharp rise in mining activity, including operations run by BYD, the world’ biggest supplier of lithium-ion batteries for smartphones and electric cars at the time. After the second incident, in 2013, officials closed the mine, but when it reopened in April 2016, the fish started dying again. Lithium-ion batteries are the most common type of battery used presently with 12kg of Lithium in the battery of a Tesla Model S. Demand for lithium is increasing exponentially, and it doubled in price between 2016 and 2018.
The production process for lithium, or more specifically lithium carbonate, involves drilling holes in salt flats and pumping salty, mineral-rich brine to the surface. This brine is left to evaporate, and the resulting salts are filtered so the lithium carbonate can be extracted. Although a very simple process, it uses large amounts of water and can be time-consuming – taking between 18 and 24 months.
It’s a relatively cheap and effective process, but it uses a lot of water – approximately 500,000 gallons per tonne of lithium. In Chile’s Salar de Atacama, mining activities consumed 65 per cent of the region’s water. This is having a big impact on local farmers – who grow quinoa and herd llamas – in an area where some communities already have to get water driven in from elsewhere.
There’s also the potential for toxic chemicals to leak from the evaporation pools into the water supply. These include chemicals (such as HCl) which are used in the processing of lithium into a form that can be sold, as well as those waste products that are filtered out of the brine at each stage. Research in Nevada found impacts on fish as far as 150 miles downstream from a lithium processing operation. A report by Friends of the Earth states that lithium extraction inevitably harms the soil and causes air contamination. Like any mining process, it is invasive, scarring the landscape and damaging the water table whilst polluting the earth and local wells.
Conversely, lithium may not be the most problematic ingredient of modern rechargeable batteries. It is relatively abundant and may in fact be generated from seawater in future, albeit through a very energy-intensive process.
Two other key ingredients, cobalt and nickel, could potentially cause a huge environmental cost. Cobalt is found in huge quantities right across the Democratic Republic of Congo and central Africa, and hardly anywhere else. The price has quadrupled in the last two years.
One of the biggest challenges with cobalt is that it’s located in one country, so there’s a strong motivation to dig it up and sell it; as a result, there’s a large incentive for unsafe and unethical behaviour. In the Congo, Cobalt is predominantly extracted in ‘artisanal mines’ by hand often using child labour without any protective equipment.
So how can we reduce all of these environmental and human effects? Many scientists argue that new battery technology needs to be developed that uses more common, and environmentally friendly materials to make batteries. Researchers are working on new battery chemistries that replace cobalt and lithium with more common and less toxic materials. However, these need to be cheaper and have higher energy density than the batteries before it to incentivise a transition. With all of these associated environmental and human impacts, it’s imperative that we scrutinise all points of the battery manufacturing supply chain so we can actually make a true ‘green’ transition.
By Ayan Banerjee
When making any decision for public policy, one must ask the question: which policy will be best for society? Economic development oppurtunities can range from investing in infrastructure to subsidies, all of which have costs and benefits. Economists must therefore use systems in which choices can be made about their effectiveness. However, diverse approaches have different positives and negatives and are further liable to their underlying assumptions. This essay will evaluate all of these factors and attempt to determine which method is most effective.
Cost-Benefit Analysis is a decision-making tool in which the benefits of a project or policy are weighed against the costs with regards to society. There are four core steps to carrying out this analysis. Firstly, the project or policy must be defined including its time period and the population it affects. Then identify the physical impacts such as labour man hours or tonnes of landfill. Following this, monetary evaluations of these costs and benefits are made. Finally, future costs and benefits are discounted since it is assumed benefits in the future are worth less than those received sooner.
There are several assumptions made throughout the process of Cost-Benefit analysis which affect its success at maximising societal welfare.
It is often assumed that the benefits and costs in the future are worth less than those that occur sooner. On one hand, there is an inherent time preference of obtaining benefits sooner rather than later. Conversely, it can be argued that the longer a project’s impact lasts, the more valuable it is with regards to sustainability. In future, environmental resources and benefits will naturally be scarcer as we pollute the environment more. Consequently, the supply of clean air, water and other environmental goods would be lower meaning they could be worth more in the future than they would be now.
The model of discounting most commonly used assumes discounting to be exponential. Usually, this system accurately represents markets in evaluating the investment choices of firms, however, it may not be applicable for public choices. The discount rate for public choices is often referred to as the social discount rate and is not straightforwardly observable. Cost-Benefit Analysis is very sensitive to changes in discount rate and since the rate is difficult to determine, discounting will often lead to inaccuracies.
Another perspective is that environmental policy decisions have intergenerational effects. Therefore, we must consider the time preference of not only present-day society but also those of the future meaning discounting solely exponentially would be imprecise. Utilising discounting runs the risk that it may downgrade future damages caused by present day economic activity which would cause major consequences in the future.
Conversely, there are benefits from using Cost-Benefit Analysis. Firstly, if the underlying assumptions are correct, it would result in the most efficient allocation of resources to maximise total social welfare. Secondly, this method has the advantage of incorporating a wide variety of factors. Often real-world scenarios involve many variables, making this approach versatile. Finally, impacts can be compared in the same unit – monetary terms. This makes it easy to relate costs to benefits in an understandable medium. However, often the process of quantifying costs and benefits is a difficult task and stated preference methods are liable to inaccuracies. Ecosystems are complex networks that are difficult to isolate and quantify. Therefore, these inaccuracies in monetary valuation are likely to be most prominent with respect to environmental impacts.
Alternative approaches include Cost-effectiveness analysis which creates a distinct aim of a policy and then compares different approaches respective to their overall cost. Therefore, the lowest cost approach to achieve the same goal is the best option. The advantage this has over Cost-Benefit analysis is that it avoids monetising the environmental benefits which are difficult to quantify. Although it avoids this negative of Cost-Benefit analysis, it is liable to the other assumptions. Furthermore, in this approach, the degree of implementation must be decided beforehand, therefore, cost effectiveness is maximised which is often not equivalent to total social welfare.
Additionally, there is Multi-criteria analysis which uses several metrics instead of placing all costs and benefits in monetary terms. Valuing certain criteria such as population of species can be very difficult and liable to great uncertainty. When involving the environment and ecosystems, using different criteria would reduce these errors and therefore make data more representative of reality. On the other hand, it is harder to compare different metrics than if it were all in monetary terms as in Cost-Benefit Analysis.
In conclusion, although Cost-Benefit Analysis is an effective tool, it is inherently flawed by its underlying assumptions and high sensitivity to discount rate. Its alternatives attempt to avoid these faults through either removing variables (Cost-effectiveness analysis) or using different metrics (multi-criteria analysis). However, these new approaches deliver different issues. Therefore, I believe that policy makers should always use multiple approaches and decide on policies that are supported by various analytical methods. This would aid avoiding the negatives of each approach and therefore give a more accurate analysis.
 Pg. 114, Kolstad, C.D. (2011), Intermediate Environmental Economics, 2nd edition, Oxford University Press, Oxford
 Alberini, Anna and Alan Krupnick, Costof Illness and Willingness to Pay estimates of improved air quality: evidence from Taiwan, 76:37-53 (2000)
 Pg. 115, Kolstad, C.D. (2011), Intermediate Environmental Economics, 2nd edition, Oxford University Press, Oxford
 Pg. 116, Kolstad, C.D. (2011), Intermediate Environmental Economics, 2nd edition, Oxford University Press, Oxford
 Pg. 121, Field, B.C. and Field, M. (2013), Environmental Economics: An Introduction, 6th edition, McGraw-Hill Irwin.
 Pg. 145, Field, B.C. and Field, M. (2013), Environmental Economics: An Introduction, 6th edition, McGraw-Hill Irwin.
By Ayan Banerjee
When Britain voted to leave the European Union in 2016, it set in motion a variety of predictions around the positive and negative economic consequences. This post focuses on the likely macroeconomic effects of leaving the customs union: a trade block consisting of free internal trade and a common external tariff.
The major consequence of leaving the customs union is the effect on tariffs around trade. In the EU's customs union, tariffs are placed on all trade with countries outside of the customs union and the complete removal of tariffs from internal countries. These have incentivised trade relations within the EU while disincentivising trade with non-EU nations. Therefore, leaving the customs union will increase tariffs on EU trade and reduce them on non-EU trade. The effect that this would have on consumers can be illustrated graphically. The supply curve for EU trade would shift vertically as there is a uniform increase in price due to new tariffs. Total surplus is also proportional to welfare which suggests that the increase in EU tariffs would result in a decrease in total societal welfare since total surplus would decrease. Furthermore, 45% of total exports and 53% of total imports are from EU nations. Since the proportion of trade with the EU is so significant, the effect on total welfare would be far greater than if the proportion of trade was smaller.
On the other hand, leaving the customs union would result in a decrease in tariffs for external countries. Before Britain joined the EU, it imported most of its wheat from the US. However, when the EU’s common external tariffs were implemented, US wheat trade ceased, and the UK began to buy its wheat from France at a higher consumer cost than the un-tariffed US price. This is an example of how joining the customs union incurred a net cost on the British economy. Consequently, Britain would have to allocate more resources to improve exports to pay for wheat imports resulting in being worse off overall3. In summary, whether the customs union is desirable depends on the extent of trade creation with respect to trade diversion. In this case, since the proportion of total trade with the EU is so large, it will most likely have greater trade diversion effects which would have an overall negative effect.
Another economic consequence is the effect on the Balance of Payments. If the UK leaves the customs union, it would likely result in a current account deficit as tariffs and other barriers to trade such as border checks would reduce exports. In the long run, a current account deficit can result in some negative consequences. Deficits are often financed by governments through borrowing which in the long run would lead to countries burdened with high-interest loan payments. Furthermore, a large deficit has the possibility of causing depreciation of the exchange rate which may lead to cost-push inflation. The value of a countries trade with another can also be evaluated using the Gravity Model of trade. With Y being income and D being distance for countries x and y (a is a constant).
Txy = a.YxYy/Dxy
As can be inferred using this formula, the value of trade with the EU is relatively large compared to other nations for two reasons. The income of the UK’s main EU trading partners, such as Germany and France, is large. This in addition to the distance being small, suggests the value of trade with EU nations is far more significant than most other non-EU nations. On the other hand, the distance effect can be outweighed by the large Incomes of nations such as Japan and the US which have greater Gross National Incomes than any EU countries. Overall, leaving the customs union may cause negative economic effects surrounding the Current Account. In addition to this, the value of trade with the EU may be larger than non-EU when considering the Gravity Model which indicates leaving the customs union to have further undesirable consequences.
Another economic effect to consider would be changes in Foreign Direct Investment (FDI). The UK has attracted the most FDI in the EU, partly due to its access to the customs union. FDI has led to greater integration with the EU and reinforced its comparative advantage in several sectors. It also leads to other positive effects including an increase in GDP, creation of jobs and an increase in productive capacity. Many international companies prefer to invest in countries in the single market which also have certainty with trade relations for non-EU nations. Additionally, complex supply chains used by these companies (for example car manufacturers) would incur significant costs with the removal of access to the single market making Britain would be less attractive for FDI. This would reduce the positive effects associated with FDI illustrated in a reduction in the capital account. In summary, leaving the customs union will likely lead to a reduction in FDI which would have harmful effects in several areas in the UK economy.
The overall effects of the UK leaving the customs union will most likely be negative. The extent of trade diversion is expected to be greater than that of trade creation. Additionally, new trade deals usually take decades to form and are an expensive process. These factors combined with reduced amounts of FDI indicate that overall the negative consequences outweigh the positive ones for the UK leaving the customs union.
Pg. 300, Krugman P.R, Obstfeld M, Melitz M.J (2018), International Economics: Theory and Policy, Eleventh Edition, Pearson Publishers.
Pg. 2, Dhingra, Swati, Ottaviano, Gianmarco I. P., Sampson, Thomas and Reenen, John Van (2016) The consequences of Brexit for UK trade and living standards. CEP BREXIT Analysis No.2 (CEPBREXIT02). London School of Economics and Political Science, CEP, London
Pg. 301, Krugman P.R, Obstfeld M, Melitz M.J (2018), International Economics: Theory and Policy, Eleventh Edition, Pearson Publishers
Pg. 40, Krugman P.R, Obstfeld M, Melitz M.J (2018), International Economics: Theory and Policy, Eleventh Edition, Pearson Publishers
Pg. 24, Kierzenkowski, R., et al. (2016), "The Economic Consequences of Brexit- A Taxing Decision", OECD Economic Policy Papers, No. 16, OECD Publishing, Paris, https-//doi.org/10.1787/5jm0lsvdkf6k-en
 Pg. 25, Kierzenkowski, R., et al. (2016), "The Economic Consequences of Brexit- A Taxing Decision", OECD Economic Policy Papers, No. 16, OECD Publishing, Paris, https-//doi.org/10.1787/5jm0lsvdkf6k-en