to what extent shoudl the uk government regulate the energy industry

Topics: Economics, Externality, Market failure Pages: 3 (1419 words) Published: April 19, 2015
Evaluate the extent to which the government should regulate the energy industry. (30) Government regulation is when they impose a wide range of laws and regulations to influence the way the market works. The current regulator of the UK energy industry is OFGEM, and they are currently investigating into all of the big 6 energy suppliers that dominate the UK market. The main reason behind government intervention is to reduce or prevent market failure. Market failure is defined as the failure to allocate resources efficiently. The UK energy market is said to be failing because of the of the suppliers monopoly power. This allows them to exploit the UK customers as thy have no other choice but to stay with the big 6 because of the lack of completion, there is also strong evidence that they are also colluding on the price of their service. Evidence c shows that Npowers price for gas rose by 8.8% and 9.2% for electricity, this huge increase in price alongside with the 25% rise in profits shows their clear ability to exploit their consumers. If the government were to increase regulation of the energy industry there would be both positive and negative effects. The main positive of enforcing stricter regulations within the energy market would be to prevent the market failure. This would be highly positive for the consumer as it means that the resources would be allocated efficiently. Also as the government would have a more influential role within the market, and could allow them to reduce the negative externalities within energy production. A negative externality is defined as a negative effect on a third party either through the production or consumption of a good or service. This increase in regulation could allow the government to enforce the providers to reduce their carbon emissions that they release whilst producing the energy. This would benefit the whole of the UK as it would mean there would be less pollution in the air, so helping reduce the rate of global...
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