Lecture 10 Flashcards
Mention three examples of envionemntal externalities
Air pollution
Water pollution
Acid rain
Global warming
What are the PMB of abatement?
Safer envionement for employees
Sequestered carbon dioxide that can be sold to greenhouses
Where is the external benefit of abatement on a graph?
Gap between PMB and SMB
What are three enviromental policy instruments?
Information based
Mandated
Incentive Based
How does an emission tax work in terms of tax rate (T) and emission target (E)?
Regulator sets tax rate T and may hit or miss E
(Quantity uncertain)
How does an cap & trade work in terms of tax rate (T) and emission target (E)?
Regulator sets E and the market discovers T through pricing
(Price uncertain)
What are methods of allocation for emission permits?
Lottery
Grandfathering (prior performance: output)
Auction
Hybrid
Firms will trade emission permits until when?
Until they equalize marginal abatement cost
Where is the cost of exterality?
Difference between SMC and PMC
What is a tax that is equal to the social cost (SMC minus PMC) of negative externality called?
Pigouvian Tax
What is the scale effect?
Reduction in output reduce emission from E to E’’
(reduction caused by using green tax to raise prices of emissions, causing a reduced output and thus lowering emissions)
What is technique effect?
The drop from E’’ to E’ thanks to abatement technology
(further drop in emissions from technology)
What is a feebate?
Combines a fee (tax) and a rebate (subsidy)
When will firms’ abatement effort continnue until?
Until marginal abatement cost equals the tax rate
types of ecolabels (information strategy)
- seal of approval (for meeting standard)
- general claim (organic, biodegradable)
- graded (ranking)
