externalities Flashcards
(5 cards)
what are mixed externalities
occur when an activity creates both positive and negative externalities simultaneously
this changes the overall social benefit or cost of the activity
2 examples of activities that create mixed externalities
- vaping,
-plastic packaging e.g. vaccines+ externalities but also have - externalities waste
- bottled water
- construction of hospital
-Reduction in greenhouse gas emissions contributes to global climate change mitigation + Improved air quality benefits public health. But Wind farms can disrupt local ecosystems and occupy large tracts of land, reducing biodiversity or displacing other uses like agriculture
Electric Vehicles (EVs): Lower tailpipe emissions reduce urban air pollution and associated health risks. But mining for lithium, cobalt, and other materials used in EV batteries can cause environmental degradation and exploitation in producing countries + Disposal and recycling of EV batteries pose long-term environmental challenges.
arguments in favour of using carbon trading scheme to cut C02 emissions
A carbon trading scheme is a policy tool used by governments to limit total carbon emissions while allowing companies to buy and sell emissions allowances
( pollution permits )
Emissions trading imposes a cap on the total allowable greenhouse gas emissions from covered sectors. This cap is gradually reduced over time. Emissions trading allows companies with lower abatement costs to sell excess allowances to those facing higher costs, ensuring that emissions reductions occur where they are most economical
A carbon price creates financial incentives for businesses to innovate and adopt cleaner technologies ( dynamic efficiency ) to reduce emissions and avoid the cost of purchasing allowances. This accelerates the transition to renewable energy and other low-carbon technologies critical to reaching net zero.
issues :
hard to measure/ detect cheating , regulation
costs could be passed onto consumers rising prices like energy= regressive effect- leaving people without heating
hard to set at correct level - too many = lownincentive to cut emissions
- could lead to unintended concequence and relocate to avoid cost of carbon permits
may fluctuate leading to uncertainty and hard to plan LT investment in green tech
concequences fall in carbon price
has decreased £ per metric tonne 2022-24 around 110 sept 2022- 40 nov 24
A lower carbon price reduces the financial motivation for businesses to invest in emissions-reducing technologies or adopt greener practices. Investors may favour fossil fuels or other carbon-intensive sources over renewables due to lower compliance costs
Industries in the UK might gain a short-term cost advantage due to reduced compliance costs in contrast for businesses in the European Union. But lower carbon prices reduce the revenue to the UK government generated from the auctioning of new carbon permits
alternative policies to carbon emissions trading
Carbon taxes: Governments impose a direct tax on the carbon content of fossil fuels or GHG emissions. The tax sets a clear price per tonne of CO₂ emitted, incentivizing reductions through cost increases for carbon-intensive activities. Provides a predictable price signal, which encourages long-term investments in low-carbon technologies. - Sweden has implemented this
predictable- PP= volatile, encouraging LT investment
Subsidies and Incentives: Financial support for adopting renewable energy, energy-efficient technologies, or other low-carbon solutions.
Examples include feed-in tariffs, tax credits for electric vehicles ( the mixed externalities ) , and grants for green infrastructure projects
