1.4.1 Tradeable Pollution Permits/ Carbon Tax Flashcards
What is carbon pricing or trade pollution permits?
It’s a cup and trade system that places a cap on the total amount of carbon emissions firms can emit and allows companies to trade emissions permits
How is the government set? A cap and issue it?
The government said a cap for pollution set at Q Star, which is the socially optimum
The permits are then issued to firms to match the caps
Explain how firms make a decision based on the cap?
Firms have to make a decision based on lease cost cheap ways to reduce the emissions. They can invest in green tech or by a spare permits so the pollutant pays in the most efficient way.
How does the permit system work?
If firms invest in green tech, there will be less of a need of having permits. This allows them to sell their permits to those firms who need it as they release more emissions.
What does the government aim to achieve with strict enforcement of these permits?
Strict enforcement pollution will come down to Social optimum there will be a long run incentive for firms to invest in green tech as per prices will increase
In the tradeable permit pollution graph, why is supply perfectly inelastic?
What will cause supply of these permits to shift left?
What is the demand for these permits?
It’s inelastic because the amount of permit is fixed
If government Titans cap and brings down them allowed level of pollution, it will reduce the number of permits leading to an increase in price
Demands for these permits will remain inelastic
If firms invest in green tech what benefits will they get?
Firms are investing green tech will never be burdened when permit prices rise even if the gov tightens cap and brings down the level of pollution which reduces the number of permits the prices of these permits rise and the firms that invested in green tech can make profits by selling their spare permits
What does this tradable pollution permit or carpentry policy promote with firms?
The policy promotes choice to firms and gives them the most cost-effective way of bringing down pollution but promotes greater long run incentives
What are the issues with the cap and trade policy?
The enforcement of this policy can be afforded by countries and is there technology to accurately measure pollution if not firms don’t follow the policy
Unintended consequences can occur like risk of carbon leakage when companies move production to other countries with lower carbon prices and if this policy increases cost of production heavily then firms could shut down and leave the country
There’s for international corporation as many companies need to partake in the scheme only for it to be effective
Third world countries don’t want to partake in his policy as they want to make money
How can carbon leakage be solved?
Can be solved if there’s taxes on borders which can reduce the risk of carbon leakage the EU has implemented this
What is carbon tax?
It’s a tax on the consumption or production of goods and services which cause carbon emissions and a tax that makes the pollutant pay
What was this carbon tax policy designed for?
It was designed to make the polluted pay for externalities created and its aim is to reduce emissions and encourage investment in low carbon technologies
What the revenue from carbon tax be used for
It can be used to fund government programs that reduce emissions examples, including renewable energy subsidies
How does carbon tax compare to carbon trading system?
Unlike carbon trading systems where there is a trading of emissions permits with carbon tax companies simply pay tax on the amount of carbon they emit
Carbon taxes are seen as simpler and more transparent way to reduce emissions then carbon trading systems
Explain how carbon emissions are negative externality in production
The marginal social costs are greater than the marginal private costs. Producers are acting in their private self interest without considering the effects on others
When the government intervenes with attacks marginal social cost is created at the socially optimum level and it shows that there is an overproduction of these emissions
