1 - Market Failure - Environment

Question 1

What’s tragedy of the commons?

Answer 1

When no one owns a resource i may become overused
- natural resources
— leading to environmental degradation and depletion

Question 2

What’s a carbon tax?

Answer 2

A tax on carbon emissions
- indirect tax on producers that raises price of emissions

Question 3

Advantages of carbon tax

Answer 3

• makes polluter pay
  — internalises externality
• incentivises firms to lower emissions and for consumers to change their behaviour
• revenue generated can be spent on other environmental initiatives

Question 4

Disadvantages of carbon tack

Answer 4

• problems determining size of tax
• demand for good produced may be inelastic
  — tax may have little impact on pollution
• could cause loss of international competitiveness

Question 5

What’s carbon emissions trading?

Answer 5

A market-based system for reducing greenhouse gas emissions

Question 6

How does carbon emissions trading work?

Answer 6

• gov sets cap on how many emissions can be produced in given time
• companies issued permits to emit certain amount of CO2
• if company emits less it can sell its surplus to a company that has exceeded
• incentivises firms to emit less

Question 7

Other green policies

Answer 7

• subsidies for green energy, home insulation etc.
• waste reduction and nudges to change behaviour
• tree planting
• fuel duty, air passenger duty
• targets for net 0, electric vehicles, renewable energy