Category: Economics for Business 9e

Posted on

A grocery duopoly: New Zealand supermarkets



The grocery retail market in New Zealand is worth billions of dollars each year and is one of the most concentrated supermarket sectors in the world. The industry is dominated by two large groups: Foodstuffs and Woolworths New Zealand. Together, these firms account for around 80–90 per cent of grocery sales, with Foodstuffs operating brands such as Pak’nSave, New World and Four Square, while Woolworths operates the Woolworths supermarket chain.

The market displays many of the characteristics of an oligopoly. The two dominant firms compete through store location, loyalty schemes, advertising and product range, and to some extent through pricing. At the same time, they benefit from substantial economies of scale, extensive distribution networks and strong relationships with suppliers. These factors mean that there are significant barriers to entry in the market and this can prevent new firms from entering the market and surviving.

Competition concerns

Concern about competition in the sector has led to investigations by New Zealand’s Commerce Commission. The Commission concluded that although there was competition in the market, it was less than optimal and both firms were earning higher profits than they would have been able to earn had they been in operating in a more competitive market.

It identified various barriers to entry that limited competition, including access to suitable retail sites, ownership of distribution networks and the difficulty of establishing large-scale supply chains in a country with a relatively small population.

Despite the market being dominated by these two big firms, there are also many smaller retailers operating within the market, including independent grocery stores, convenience stores and specialist food retailers. However, they lack the scale that is needed to challenge the dominance of Foodstuffs and Woolworths at a national level.

Potential international entrants, such as Aldi and Lidl, have often been suggested as possible competitors, but the costs of establishing a nationwide network of stores and distribution facilities in New Zealand are significant. There have been examples of large and dominant supermarkets in one country attempting to enter the market in other countries but failing to survive or deciding to exit the market early. For example, Tesco entered the Chinese market in 2004 but, despite its efforts, exited the market in 2020.

Response by the New Zealand government

In response to concerns about competition, the New Zealand government has introduced a series of measures designed to make market entry easier. These include restrictions on anti-competitive land covenants, the introduction of a Grocery Commissioner and changes intended to improve access to wholesale grocery supply.

But, despite these measures, recent reports suggest that the overall market structure has changed little, with the two major firms continuing to dominate grocery retailing.

The public interest

Supporters of the current market structure argue that large supermarket chains deliver lower costs through economies of scale and provide consumers with extensive product choice.

Critics counter that limited competition leads to higher prices, reduced innovation and weaker bargaining power for suppliers.

The debate illustrates the difficulties faced by policymakers when attempting to balance efficiency against the promotion of competition.

Whether greater competition will emerge in the future remains uncertain. Much will depend on whether existing reforms can encourage new entrants or whether the structural advantages enjoyed by Foodstuffs and Woolworths continue to deter potential rivals.

Articles

Questions

  1. What are the characteristics of the New Zealand supermarket industry that create barriers to entry for new firms?
  2. To what extent is the New Zealand grocery market consistent with the characteristics of an oligopoly?
  3. Evaluate the likely effectiveness of government measures designed to increase competition in the supermarket sector.
  4. Australia too has two main supermarket chains: Coles and Woolworths. However, Aldi has entered the Australian market and in some parts of the country had provided significant competition to the two major chians. Why may Aldi have more difficulty in entering the New Zealnd market
  5. Investigate the grocery retail market in another country (not the UK). Who are the major competitors and what is their market share? What barriers to entry exist? Has the competition authority expressed concerns about the market and if so, what are they?
Posted on

AI: benefits but catastrophic risk



Artificial intelligence (AI) has become a key technology in the 21st Century. Businesses use AI systems to analyse data, automate routine tasks, improve customer service, write software, create content and even assist with decision-making. As AI improves and becomes even more capable, governments, economists, businesses and society are debating its effects on productivity, employment and economic growth – and also its potentially extreme dangers.

Some commentators compare AI to earlier technological revolutions such as the steam engine, electricity and the Internet. They argue that AI will continue to increase productivity, create new industries and improve living standards. Others worry that AI may eliminate a large numbers of jobs, increase inequality, concentrate economic power in a few firms and, in the most extreme scenarios, pose a threat to humanity itself.

These debates raise important questions including how society should evaluate the potential risks of a technology whose benefits may be enormous but whose long-term consequences remain uncertain.

AI and the labour market

Historically, technological change has had both positive and negative effects on employment. Automation reduced the demand for many agricultural workers, while creating jobs in manufacturing. Computers automated clerical tasks but generated entirely new industries in software, telecommunications and digital services.

AI appears likely to follow a similar pattern. According to the World Economic Forum, advances in AI, robotics and information-processing technologies are expected to transform labour markets significantly during the second half of the 2020s, creating demand for new skills while reducing demand for others. The fastest-growing skills are expected to include AI and big data, technological literacy and cybersecurity.

The potential benefits

AI may benefit labour markets in several ways:

  • Higher productivity: Workers can complete tasks more quickly with AI assistance.
  • New occupations: Demand has emerged for AI engineers, prompt specialists, data scientists and AI governance professionals.
  • Better decision-making: Firms can use AI to improve forecasting, inventory management and customer service.
  • Complementing human skills: AI may perform repetitive tasks, allowing employees to focus on creativity, problem-solving and interpersonal activities.
  • Economic growth: Higher productivity can increase profits, wages and living standards over time.

Many economists argue that AI will not simply replace workers but will change the tasks they perform. Research from the OECD suggests that even highly AI-exposed occupations continue to require management, communication, collaboration and social skills that technologies struggle to replicate.

The potential costs

At the same time, AI may create significant labour-market challenges. Many white-collar occupations previously considered relatively safe from automation are becoming vulnerable. Generative AI systems can draft reports, analyse legal documents, write computer code and create marketing content. This means that some professional and administrative roles may face considerable disruption.

The World Economic Forum reports that business leaders have differing expectations about the effects of AI. In a 2026 survey (see link below), around 54 per cent expected AI to displace existing jobs, while only 24 per cent expected it to create new jobs within their organisations. Economists have identified several potential problems:

  • Structural unemployment: workers in industries that are in decline may struggle to find employment requiring their existing skills.
  • Increased income inequality: there may be a growing income disparity between highly skilled and less-skilled workers.
  • Growing market power: the largest technology firms that own the most advanced AI systems may see their market power grow further creating dominance in certain areas.
  • Regional inequalities: AI-related investment may become concentrated in particular cities and countries, exacerbating regional inequalities within and between countries.
  • Pressure on governments: to address issues of structural unemployment and increasing inequality, governments may be forced to expand retraining and social-support programmes.

AI and catastrophic risk

Most economic discussion around AI focuses on employment and productivity. However, some researchers argue that the most significant risks from AI may be much broader.

Economists distinguish between ordinary risks and catastrophic risks. Catastrophic risks involve events with a very low probability of occurring but potentially enormous consequences. Examples include nuclear accidents, pandemics and certain climate-related disasters.

AI raises similar concerns. Advanced AI systems could potentially be used to conduct cyberattacks, spread misinformation, disrupt critical infrastructure or support the development of dangerous technologies. Some researchers have even suggested that highly advanced AI systems could pose an existential risk to humanity if they become sufficiently powerful and are not properly controlled.

This became a widely discussed topic in the media in September 2026 following the resignation of an employee, Jacob Coxon, from AI firm, Anthropic. He said that people working on AI were ‘genuinely frightened’ about how quickly AI was advancing and what it might mean for the future of humanity. He said:

I believe that if we don’t slow down at the current rate of progress, there is a strong chance that we could all die in the immediate future.

Other researchers have raised similar concerns and there have since been calls from some of the biggest AI companies for regulation of AI to prevent this.

The policy debate and CBA

All of this creates a challenge for cost-benefit analysis. Suppose AI generates trillions of pounds of economic benefits. But, if there is also a very small probability of catastrophic harm, how should policymakers weigh up the two?

Traditional cost-benefit analysis values risk by multiplying the size of a potential outcome by its probability. However, this approach becomes problematic when both the probability and the consequences are highly uncertain. The risks may be extremely difficult to estimate, while the potential costs could be vast and affect future generations. For this reason, governments and firms increasingly use scenario analysis, stress testing and AI safety assessments to evaluate potential risks. These approaches attempt to prepare for extreme outcomes rather than relying solely on probability calculations.

Supporters of AI argue that technological progress has historically improved living standards and that restricting AI too heavily could reduce innovation and economic growth. Critics argue that uncertainty about potentially catastrophic outcomes justifies a more cautious approach.

The debate therefore extends beyond labour economics to the wider issue of managing catastrophic risk. As with nuclear power or climate change, policymakers must decide how much risk society is willing to accept in exchange for potentially large economic benefits.

Articles

Reports

Questions

  1. How might AI increase productivity while also causing unemployment in some sectors? Which sectors are likely to be affected the most?
  2. Why is it difficult to estimate the costs and benefits of advanced AI?
  3. Assume that a disaster is estimated to cost society £1000 billion (£1 000 000 000 000). The chances of the disaster occurring are said to be minute, however. Estimates vary from a probability of one in a million to one in a billion. What estimate of this cost would you include in a cost–benefit analysis?
  4. Why are many low-income countries apparently prepared to accept riskier projects than are high-income ones?
  5. Discuss whether the greatest economic challenge posed by AI is (a) job displacement; (b) increased inequality; (c) market concentration and the power of large technology firms; or (d) catastrophic long-term risks.
  6. Read the article by Bill Gates, The turbulent AI era is here. The choices we make now are critical. According to him, what steps should the world take to ensure that ‘AI will be a force for good and leave everyone better off’?
Posted on

Controlling inflation with higher interest rates – a blunt instrument?


Inflation has been rising around the world. The main reason has been the supply shock of rising oil, fertiliser and commodity prices caused by the Iran war and the disruption to global supply chains from conflicts in the Middle East and Russia (see the blog, Why have diesel prices risen more than petrol prices?). Central banks, including the US Federal Reserve Bank, the European Central Bank and the Bank of Japan, have responded to this cost-push inflationary shock by raising interest rates. The Bank of England is likely to raise Bank rate at its next meeting on 5 November 2026.

Similar supply shocks have been experienced in recent years (see the May 2026 blog, Supply shocks – long-term gain from the short-term pain?).

Raising interest rates reduces aggregate demand, or at least its rate of growth. This puts downward pressure on prices, or at least on the rate of inflation. This can be illustrated in the diagram. (Click here for a PowerPoint.)

It shows a country’s initial short-run aggregate supply curve (SRAS1) and initial aggregate demand curve (AD1). The price index is P1 and real GDP is Y1.

The higher costs shift the SRAS curve upwards to the left, say to SRAS2. The price index rises to P2 and real GDP falls to Y2. If, in response to the higher prices, the central bank raises the interest rate, this shifts the aggregate demand curve to the left, say to AD2. As a result, the price index falls back to P1, but the fall in demand causes real GDP to fall further, to Y3.

Policy alternatives

So, is a rise in interest rates the appropriate response to higher costs that push inflation above, or further above, its target, which for most countries is 2%?

If the cause of inflation was excessive increases in aggregate demand from, say, large government budget deficits or a large increase in consumer demand, then a rise in interest rates would have helped reduce this unsustainable rise in demand. But if the cause of the inflation is a supply shock, is curbing aggregate demand the correct solution?

Ideally, the solution would be to tackle the cost increases directly. A rise in productivity, for example, would help to increase aggregate supply and counter the effect of rising commodity prices. But productivity increases take place over the longer term and are not a solution to a short-term supply shock. Better still, if the increase in commodity prices could be reversed, by finding a political solution that reopened the Strait of Hormuz and other choke points, then higher interest rates would not be needed.

Alternatively, some countries might be able to resort to price controls. These could be targeted at specific sectors such as energy, rent or construction. For example, the UK government has used energy price caps to limit household energy bills.

But even though this may control inflation in the short term, price controls create shortages because demand exceeds the reduced supply. This could lead to higher prices in unofficial markets as people sought to avoid the price controls. It could also create considerable problems for firms planning their logistics when supplies may simply not be available.

Alternatively, subsidies could be used to support output or prices in similar areas. Or they could be targeted at low-income households. These, however, could be costly for governments and may distort markets.

If price controls and subsidies are rejected, and in the absence of short-term increases in aggregate supply, the only solution to inflation is curbing aggregate demand to match the reduced aggregate supply. This could be achieved through fiscal policy by raising taxes or reducing government expenditure, but would prove unpopular and would probably be rejected by governments. Generally, they would prefer to pass the burden to central banks through the use of monetary policy.

The blunt instrument of monetary policy

But, raising interest rates is, indeed, a blunt instrument. Tighter monetary policy cannot increase the global supply of fuel, fix broken supply chains or lower insurance and construction costs. In other words, it cannot directly fix supply shocks, only limit their effect on prices.

Also, by making borrowing more expensive, higher interest rates may suppress business investment and house building. This adverse supply-side effect may worsen inflation over the longer term.

The hope is that such effects will be avoided by suppressing inflation and helping thereby to maintain business confidence. It is a delicate balancing act for central bankers, who want to constrain inflation but do not want to plunge their economies into recession and damage longer-term increases in potential real GDP.

Most of all, the hope is that by suppressing nominal demand, second-round effects will be avoided. These are where higher prices encourage workers to demand higher wages to compensate for higher prices and businesses to raise prices to cover those wage increases, knowing that they can pass these price increases on to consumers as their competitors are doing the same. This risks creating a damaging wage-price spiral and embedding inflation. By raising interest rates and signalling that they will bring inflation back down to the target rate, central banks hope to anchor long-term inflation expectations. They hope that this will ensure that temporary price shocks do not become permanently embedded in the economy.

Distributional consequences

However, the burden of higher interest rates will not be shouldered equally. They predominantly penalise a minority of the population, especially younger households with consumer debt and/or large variable-rate mortgages relative to their income or fixed rate mortgages coming the end of their term and requiring renewing. They also penalise businesses which rely on short-term debt.

Meanwhile, people who own their homes outright or wealthy savers may be largely unaffected or even benefit from higher yields on their savings deposits. Similarly, firms with low debt may hardly be affected.

Consequences for servicing public debt

Higher interest rates increase governments’ debt-servicing costs. More has to be paid on new borrowing, either to finance budget deficits or to replace government bonds and bills that are maturing. This consumes a larger share of public spending and limits the fiscal room to support vulnerable households suffering from the price and interest increases.

We examined such costs in the US context in the blog US national debt reaches $40 trillion: but does it matter?.

Fingers crossed!

By being cautious about raising interest rates, central banks hope that geopolitical developments will be favourable and that the supply constraints will diminish. For example, the hope is that there will be a settlement between the USA and Iran that allows oil to flow once more through the Strait of Hormuz. That is why, despite inflation being well above target, central banks have been raising interest rates by just a quarter of a percentage point.

Articles

Videos

Information

Questions

  1. What policies have central banks pursued during the Iran war?
  2. Paint an optimistic scenario for the global economy five years hence.
  3. Paint a pessimistic scenario for the global economy five years hence.
  4. Compare the reasons given by the Federal Reserve and ECB for raising interest rates with those given by the Bank of England for not raising them.
  5. Donald Trump argues for cutting interest rates as a stimulus to the US economy. Provide a critique of this policy.
Posted on

Why have diesel prices risen more than petrol prices?



From the start of the American and Israeli war with Iran on 28 February 2026 to 30 September – a period of just seven months – the retail price of petrol in the UK has risen by approximately 43p, from around 132p to 175p per litre – a rise of 33%. In contrast, the price of diesel has risen by approximately 59p, from around 142p to 201p per litre – a rise of 42%.

In several other countries the percentage difference is greater still, particularly in countries where fuel taxes are lower and thus the wholesale cost of the fuel is a larger percentage of the pump price. In the USA, for example, petrol (gasoline) prices have risen by around 38%, whereas diesel prices have risen by around 73%.

But why have diesel prices risen by more than petrol prices? The answer has to do with supply and demand.

Supply

Greater effect of the Iran war on diesel supplies.  The closing of the Strait of Hormuz has drastically cut the supply of oil from the Gulf states. This is being compounded by the Houthi attacks on Saudi shipping in the Red Sea. This has forced Saudi oil that is transported by pipeline to the Red Sea and destined for countries east of Saudi Arabia to be transported north via the Suez canal rather than south through the Bab al-Mandab Strait. This has been made worse by attacks launched from Iraq on the Saudi oil pipeline.

Middle Eastern crude oil’s composition is the most efficient for refining high-quality diesel. The restriction on exports, both of crude oil and of diesel from Gulf refineries, has thus affected diesel supplies more than petrol supplies.

Effect of Ukraine war.  Ukraine has been launching drone attacks on Russian refineries, mainly producing diesel. The resulting shortage of diesel within Russia has led it to impose a ban on diesel exports, extended at least to the end of 2026, to limit the effects on supplies for the military and for domestic users. Russia has historically been the world’s second-largest diesel exporter and the ban has reduced the world’s supply of seaborne diesel by around 12%.

Low diesel stocks.  Stocks of diesel have been run down and this has meant that there is little flexibility to draw them down further.

Refinery constraints.  Refineries cannot instantly alter their output to produce more diesel. Furthermore, diesel has become more expensive to produce in recent years due to the transition to ultra-low sulphur diesel to meet stricter environmental standards. This makes the supply of diesel relatively price inelastic, exaggerating the effect on price.

UK refineries produce more petrol than the domestic market requires, making the UK a net exporter of petrol. This higher self-sufficiency partially shields domestic petrol prices from global shocks. However, the UK does not refine enough diesel to meet domestic demand. It relies heavily on foreign imports to cover the shortfall. Thus diesel prices in the UK are more subject to global price increases.

Demand

Seasonal demand spikes.  The demand for diesel tends to rise in late summer due to extra agricultural demand for autumn crop harvests.

Low price elasticity of demand.  Unlike petrol, which is primarily consumed by individuals who can choose to drive less when prices rise, diesel is essential to industrial economies. It powers lorries, ships, buses, trains, agricultural machinery, mining equipment and many industrial machines. Because businesses must keep moving goods, farming crops and running machines, global demand for diesel is little affected by rising prices. This low price elasticity of demand results in a bigger price rise for every reduction in supply than is the case for petrol.

What is more, the transition to EVs has been greater for cars than for lorries, although many buses and vans are now electric. The electrification of the railways, however, is too long-term a project to affect short-term diesel prices and electric lorries are still in their infancy. But with rapid development of electric alternatives underway in the haulage and industrial machinery sectors, they may become less reliant on diesel in the relatively near future.

Articles

Videos

Questions

  1. Draw a demand and supply diagram for diesel and petrol to illustrate the effects discussed in this blog.
  2. Is the demand for diesel likely to be more elastic over the longer term? Explain.
  3. Compare the effects on diesel prices in the UK with one other country of your choice. How similar are the factors affecting the relative price increases in diesel and petrol in the two countries?
  4. Would cutting taxes on diesel solve the problem of higher prices for diesel users?
  5. How has the cost of heating oil and aircraft fuel changed compared to that of petrol and diesel? Explain.
  6. What would be the effects on diesel prices in the UK and the USA if Donald Trump carried out his potential plan to ban US exports of diesel?
Posted on

Feeding Godzilla



The World Meteorological Organization predicts that a ‘super El Niño’ is building. This has been nicknamed ‘Godzilla’. If forecasts are correct, this will be the most extreme El Niño in 1000 years.

El Niño is a natural phenomenon. It occurs when the surface temperatures in the central and eastern tropical Pacific Ocean warm and cause the trade winds that typically blow from east to west across the Pacific Ocean to weaken or even reverse direction. As well as increasing global temperatures and causing intense heatwaves, it can result in droughts in some parts of the world, such as eastern Australia, south-east Asia and southern Africa, and intense rain and flooding in parts of South America, eastern Africa and south-western North America.

Typically, in an El-Niño event, the surface temperature of the central-eastern equatorial Pacific Ocean rises by 1°C to 1.5°C above the average. In the current El Niño, it is forecast to rise by up to 4°C by the end of 2026 and into 2027. It is already between 2.2°C and 2.6°C above the average. The effects could be catastrophic and hence the term ‘Godzilla’.

Although El Niño is a natural phenomenon, its severity is a direct result of climate change. This in turn is a direct result of economic decisions, and the effects will have severe economic consequences.

The economic causes

Climate change is an external cost of private economic decisions. When people or organisations burn fossil fuels, the climate costs of the CO2 emissions are not borne by the emitter. They are an external cost. This is illustrated in the diagram below, which shows the costs and benefits of electricity production from fossil fuels. (Click here for a PowerPoint.)

In this example, to make things simple, we assume that the external climate costs begin with the first unit of electricity generated and increase at a constant rate. The marginal social cost (MSC) of electricity generation equals the marginal private costs (MPC) to the generating company plus the marginal external cost in production MECP.

As you can see, the MSC curve is above the MPC curve. The vertical distance between them is equal to the MECP. It is also assumed that there are no externalities in consumption, which means that the marginal social benefit (MSB) curve is the same as the marginal private benefit (MPB) curve.

Competitive market forces, with producers and consumers responding only to private costs and benefits, will result in a market equilibrium at point a: i.e. where demand equals supply. The market equilibrium price is Ppc, while the market equilibrium quantity is Qpc. At Ppc, with no externalities on the consumption side, MPB is equal to MSB. The market price reflects both the private and social benefits from the last unit consumed. However, the presence of external costs in production means that MSC > MPC.

The socially optimal output would be Q*, where P = MSB = MSC, achieved at the socially optimal price of P*. This is illustrated at point c and clearly shows how external costs of production in a perfectly competitive market result in overproduction: i.e. Qpc > Q*. From society’s point of view, too much electricity is being produced from fossil fuels.

Total social surplus equals consumer surplus plus producer surplus minus the external costs. At the market equilibrium (Qpc) this is areas eaPpc+ Ppcaf – fba (or hjk, as it is the same size). At the socially optimal level of output (Q*) total social surplus is areas ecP* + P*cgf – fcg (or hlm).

Although consumer-plus-producer surplus is higher at the market equilibrium (Qpc) than at the socially optimum output (Q*) by the area cag, the external costs are higher still by the area cbag (or ljkm). Therefore, total social surplus at the market equilibrium is smaller than at the socially optimal point by area abc. This is a deadweight welfare loss and represents the excess of social costs over social benefits at all outputs above Q*. Put another way, moving from Qpc to Q* would represent a gain in social surplus of the area abc, as the fall in external costs outweighs the fall in consumer-plus-producer surplus.

One of the reasons why external environmental costs cause problems in a free-market economy is that no one has legal ownership of the atmosphere. Therefore, nobody has the ability either to prevent or to charge for their use as a ‘dumping ground’ for CO2. Such a ‘market’ is missing. Control must, therefore, be left to the government, international organisations, local authorities or regulators.

But such control is often too little. For example, when President Trump came to office in January 2025, he announced that the USA would withdraw from the UN’s Paris Agreement on climate change and that his policy towards oil production would be to ‘drill, baby, drill’. Indeed, governments globally spend hundreds of billions of dollars a year in subsidising oil, gas and coal production and its use, partly from pressure from the fossil fuel industry and partly to reduce the cost of living for consumers. This embeds fossil fuel dependence.

Game theory can help to explain the slow process of carbon reduction. For an individual country, such as the USA, it might argue that its optimum solution would be for other countries to cut their emissions, while maintaining its own levels. This approach would yield most of the benefits to the USA and none of the costs. However, when all countries argue like this, no progress is made. It’s a prisoners’ dilemma. Only if countries believe that the other countries will (a) ratify an agreement to cut emissions and (b) stick to the approved terms, is the agreement likely to succeed. This requires trust on all sides as well as the ability to monitor the outcomes.

Another major problem area concerns equity. Most countries will feel that they are being asked to do too much and that others are being asked to do too little. High-income countries will want to adopt a grandfathering approach. The starting point with this approach would be current levels of pollution. Every country would then be required to make the same percentage cut. Low-income countries, on the other hand, will want the bulk of the cuts, if not all of them, to be made by the rich countries. After all, the rich countries produce much higher levels of pollutants per capita than do the poor countries, and curbing growth in low-income countries would have a far more serious impact on levels of absolute poverty.

But will a supersized El Niño persuade countries to make deeper cuts in carbon emissions? In recent months commitments to achieving net zero emissions have waned. But the following economic consequences may encourage some countries to make deeper emissions cuts.

Economic consequences of a Godzilla El Niño



Extreme droughts, heat, wildfires and harvest failures in some areas and extreme rainfall and flooding in others will have severe economic consequences, often for the poorest people. There will be reductions in crop yields and loss of livelihood. Food prices will rise globally. This will add to the inflationary pressures from higher oil prices caused by the Iran war.

Droughts and wildfires in south-east Asia and Australia could have disastrous effects on harvests of palm oil, coffee, cocoa, rice, maize, wheat and various tropical fruits. Droughts and heat reduce output from hydropower and possibly wind energy, and industrial production may slow as a result of extreme heat in workplaces.

In Europe, warmer winters and unusually wet springs promote rapid plant growth. When this is followed by summer heatwaves, the undergrowth dries out and provides fuel for the wildfires. A super El Niño will amplify this. France and Spain have experienced massive wildfires these past few months. In the UK, the 2026 summer has been the hottest on record. The costs in Europe of the heat and wildfires in terms of lost crops and animals have been immense.

Floods and storms damage roads, power grids, railways and buildings. This forces governments to spend money on repairs instead of long-term investments. People are displaced and many are likely to lose their lives.

Fortunately, El Niños fade after a few months to be replaced by the cooler La Niña. The problem is that, with global warming, the next El Niño in a few years could be even more extreme with even more serious economic consequences.

The hope is that governments wake up to the pressing need to reduce carbon emissions.

Videos and podcast

Information

Articles

Questions

  1. What is the current state of progress towards meeting the goals of the UN Paris Climate Agreement?
  2. Are there any externalities in consumption that affect global warming?
  3. How might technological progress make it privately profitable to reduce carbon emissions?
  4. How might global supply chains and shipping be affected by a super El Niño?
  5. What role can education play in tackling climate change and its effects?