1.4 Government intervention Flashcards
(13 cards)
What are carbon taxes?
A carbon tax is a tax on the consumption or production of goods and services which cause carbon emissions.
It is a policy designed to make the polluter pay for externalities created.
What is government intervention?
Refers to actions taken by a government to influence or regulate economic activity, often to address market failure or achieve specific economic goals.
What is carbon/emissions trading?
A market-based approach to controlling pollution by providing economic incentives for reducing the emissions of greenhouse gases, especially CO2.
The goal is to reduce overall emissions by creating a financial motivation to emit less – companies that can reduce emissions cheaply can sell their extra allowances to others for profit.
What is the cap-and-trade system?
Government or international bodies set a cap on the total amount of greenhouse gases that can be emitted.
Companies are given or can buy emission allowances (carbon credits) that let them emit a certain amount.
If a company emits more than its allowance it can sell the surplus to others who need more.
What are advantages of cap-and-trade?
Market based efficiency – Encourages businesses to reduce emissions cost-effectively by trading surplus credits.
Financial incentives to innovate – promotes investment in clean tech and renewable energy.
Flexible compliance – companies can choose how to meet targets – either by cutting emissions or buying credits.
Gradual transition – provides a way for industries to transition away from fossil fuels without sudden disruption.
Disadvantages of cap-and-trade system?
Risk of manipulation and fraud – some companies may inflate emissions data or sell non-genuine offsets.
Uneven impact – wealthier companies or countries can buy their way out of reducing emissions, leading to environmental injustice.
Complex monitoring and enforcement – requires robust systems to track emissions and verify offsets, which can be costly and complex.
May delay real change – if credits are too cheap or too abundant companies may buy credits instead of reducing emissions.
What is a carbon boarder tax?
A carbon boarder tax aims to reduce emissions by placing a tariff on imports from countries with less stringent climate policies.
Requires importers to pay a fee for the carbon emissions embedded in the products they are exporting.
What is the point of the carbon boarder tax?
The idea is to level the playing field for domestic companies that are subject to carbon prices or other climate regulations by preventing foreign companies from gaining a competitive advantage through lower costs.
What are advantages of a carbon boarder tax?
Encourages companies with weaker climate policies to take action to reduce their carbon emissions.
Protects domestic industries – help to prevent carbon leakage which occurs when companies move production to countries with weaker climate policies.
Tariffs generate revenue for climate action – this is used to fund climate action
What are disadvantages of a carbon boarder tax?
Could lead to trade disputes if it is seen as a protectionist measure. Will hamper exports from poorer countries.
Increases the cost of imported goods, which could lead to higher consumer prices. This will have a regressive impact on low income households.
What is regulatory intervention and what are examples?
Regulations of the behaviour of businesses and consumers are best described as a command-and-control approach to intervention in a market - backed up by inspection and penalties for non-compliance.
Examples-
Smoking bans in public places
Maximum CO2 emissions for new vehicles
What are advantages for regulating activities?
Regulations act as a spur for business innovation to cut the level of carbon emissions.
Regulations may be more effective if demand is unresponsive to price changes.
Regulations can be gradually toughened each year – this will help stimulate investment.
What are disadvantages from adding extra regulation of industries?
High cost of enforcement/administration of strict laws.
Regulation can lead to unintended consequences, this causes gov failure.
The cost of meeting regulations can discourage small businesses and lead to less competition in markets.
