Economic Impact of Pollution: Article Analysis

Economic Impact of Pollution Article abstractLuis Andre Talavera NunezCONTEMPORARY ECONOMIC ANALYSISAn analysis of Peter Cais phrase Iron ore the victim in Beijings smog crack slew in the Business print the 26th of February 2015 in the website businessspectator.com.auEXECUTIVE SUMMARYPeter Cais clause analyses the sparing cushion of the pollution produced by the firebrand computeies in china and their repercussion in the steel trade and the iron ore prices.The article takes as an example the city of Hebei, one of the most most-valuable steel maker centres of china, which suffers one of the most lively pollution levels of its history. The responsiblenesss strategical location close to Beijing, the Chinese capital is a indorser occurrenceor to the increment of smog in the metropolitan area. The social pressure that arises from this guinea pig is forcing the brass to take drastic decisions with potential socio- sparing impacts.New environmental standards were creat ed in order to regulate the dismissions. The new policies rescue the power to shut down any factory that does not meet the minimum standards. This is creating a push-down list of pressure on the industry and forcing the steel makers to reduce output and, in nearly cases, to update their assets.This new policies come in line with the Chinese economy slow down and the decrease of hire for the steel and its primary(prenominal) resource, the iron ore. This has generated a crisis in the steel manufacturing industry that has seen a decrease of revenue and an increase of the operational cost in the last year.thither is a potential risk of massive plants shut downs out-of-pocket to an important number of the steel makers wont be able to buckle under the high cost that an update represents. This is also a consequence of ugly presidency regulations during the economic boom that did not stimulate the companies to reinvest the capital in new and cleaner technologies when the revenue was higher.The social pressure has forced the governance activity to take strong policies orientated to reduce the steel return cleverness with the address to minimize and control the toxic emissions. This represents a massive economic impact for the regimen which will be put oned by swallow revenue revenue and potential increase of unemployment.INTRODUCTIONThe Hebei province, puff up cognize as the biggest steel producer in China and the second worldwide, contri furtheror of the 22.5 percent of the national steel output is facing a critical sentence. The reports rise a fall of 0.6 percent from the total steel end product in 2014 in comparison to the 2013 figures and Chinas total occupation is expected to drop 1.07% to 814 million tonnes by 2015. (Stanway, 2015 the Australian, 2015). The main reason for this crisis is the reduction in demand for the Chinese market and the new environmental policies that control the operation of plants that exceed the new emission st andards (Li 2013). This environmental issue has ascertain the province within the top 10 most contaminated cities in China and has been affected peoples health critically trim life expectancy by five years (Cai P., 2015 Stanway, 2015). As a consequence, there is a strong social pressure that request loyal events to a problem that seems not to have a sustainable dissolver in the short term.This article address the following issuesThe economic impact of the reduction of steel productions output in the province of Hebei and its repercussion on the steel and iron prices in the short and intermediate term.The impact of the new environmental policies that force the shutdown of steels factories that dont meet the minimum emission standards.Reduction in the demand of steel, impact on the regimen revenue and increment in the unemployment rate.ECONOMIC THEORIESOne of the most important parts of the article is the high-power of the Chinese steel market and its influence in the iron gl obal supply. In the last decade the Chinese demand and supply for steel have been growing consistently driven by the strong urbanisation process (World Steel Association 2014). However, this figure is ever-changing rapidly due to Chinas growth slowdown and a shift towards an economic model orientated to consumption and less steel dependent. The performance indicators demonstrate that the Chinese steel markets not in shape (Serapio. 2014), face grievous issues related to competitiveness, productivity, efficient logistics, infrastructure and technology. The chart below explains the relation among Supply and Demand during the last 7 years and the reduction in market growth as final result of the deceleration.Figure 1 quotation EYGM express mail. 2014.The effect of the reduction in steel demand has been reflected in demoralise steel prices as result of the existing excess of the capacity. The steel producers have no other option than become much competitive, orientating their ef forts to cleanse productivity and reduce costs in order to maximize the profits. fit in Agrawal (EYGM Limited. 2014), this highly competitive scenario will lead to a flatter marginal cost curve along the productive sector, reducing the breach between the competitors. This means that any fluctuation in the market variables will affect most of the participants evenly.THE PARTICIPATION OF THE GOVERNMENTWhat is the position of the organization? The Chinese judicature is facing two major issues. According Elliott (EYGM Limited. 2015), the two major contributor factors are the critical contamination levels in most of the major cities rough the country as product of the poor regulation policy to the steel market and the socio economic pressure to maintain an industry that provides generous tax income and maintain low unemployment levels.As result of social pressure the government decided to apply new regulation policies with the aim to reduce the true(a) steel production capacity. Th e new industrial emission standards give the government the tools to shut down the plants that dont meet the new environmental requirements (Jiabao, Li. 2013). The article mentions that the pollution reduction technologies are expensive and under the sure steel prices and many of the current steel producers are not expiry to be able to afford the investiture. This exemplifies a clear normative economic, where the government identify a problem and prescribe solutions based on facts.Un-employment is an special impact that has to be managed by the government. According Cais article, the new industrial policy could cost 200,000 direct jobs as well as other 400,000 indirect positions. In the short term the chances of a rapid migration towards a cleaner and environmental friendly industry are almost unimaginable due to the economic situation that the China is facing at the moment.. here(predicate) is where the government must evaluate different tools like tax incentives in order to stimulate the migration to cleaner industries in the medium term.One fact that was not mentioned in the article is that the government possesses participation in some factories these factories receive incentives that allow them to operate even in loss with the aim to maintain levels of employment. This creates a clear dead weight loss for the government (EYGM Limited. 2014). The government subsidies are illustrated in the graph belowFigure 2 Deadweight loss of government bounty in the steel market.P1 is the original market price for the steel and Q1 is the original demand. Pc is the price that the consumer pays after the subsidy whilst Ps is the real price including the subsidy. Qs is the quantity of steel produced as result of the subsidy, this represent inefficient production.The area highlighted in red represents the deadweight loss to that the baseball club pays as product of the government subsidy.CONCLUSIONCais article highlights the knotty situation that the Chinese steel market is facing these days, as well as, the economic, environmental and social repercussion of its reduction capacity and the roll of the government in the market regulation.The article makes reference to production figures that can be easily tracked and verified in diverse economic reports. thither are two points that the article doesnt cover in deep. The subsidies of the government to some steel makers and how this affects the supply and the effect of the Iron Ore price fluctuations in the Chinese steel market.Its clear that the social pressure is changing the traditionalistic political Chinese scenario, characterized by their authoritarian decision make at the moment to approve and put in practice government interest policies. The demand for a better air quality reflects a new scenario where the politicians are willing to listen and negotiate.The short term solution of shutting down factories that dont meet the environmental standards is yet a policy that can alleviate the c urrent contamination but does not provide a sustainable solution to the underlying problems support the competitiveness of Chinese market under optimal environmental standards. centralise unemployment and also guarantee the resources that the country required to continue growing sustainably.The antecedency in a long term is to promote the development of more environmental friendly industries that can produce the high end products that China will require in the succeeding(a). However, this is a big risk considering the investment and time required to transform an industry that has been considered one of the most traditional and important in China.REFERENCESCai, P. (2015). Iron ore the victim in Beijings smog crackdown. Business spectator. Retrieved from http//www.businessspectator.com.au/article/2015/2/26/china/iron-ore-victim-beijings-smog-crackdown.EY Limited (2014). Global steel 2014, planning to profit from opportunity preparing for future demand. Retrieved from http//www.ey. com/Publication/vwLUAssets/EY_-_Global_steel_2014/$FILE/EY-Global-steel-2014.pdfThe Australian (2015). Chinas steel production to fall. Retrieved from http//www.theaustralian.com.au/business/mining-energy/chinas-steel-production-to-fall/story-e6frg9df-1227208363291Serapio, Manolo. 2014 China steel demand shrinks for first time in 14 years as slowdown stingshttp//www.reuters.com/article/2014/09/25/us-china-steel-idUSKCN0HK0Z320140925Stanway, David. 2015. Steel output dips 0.6 pct in Chinas Hebei in 2014http//www.reuters.com/article/2015/01/26/china-steel-hebei-idUSL4N0V51DK20150126World Steel Association. 2014. World Steel in figures 2014http//www.worldsteel.org/dms/internetDocumentList/bookshop/World-Steel-in-Figures-2014/ enrolment/World%20Steel%20in%20Figures%202014%20Final.pdfEYGM Limited. 2015. Global steel 2014 Planning to profi t from opportunity preparing for future demandhttp//www.ey.com/Publication/vwLUAssets/EY_-_Global_steel_2014/$FILE/EY-Global-steel-2014.pdfJiabao, Li. 2013 Plant shutdowns likely as emission standards kick inhttp//usa.chinadaily.com.cn/business/2013-03/15/content_16310734.htmAmerican Economic Review. 1997http//www.swlearning.com/ibc/ vestibule/pdf/CH1a_hl.pdf