Chapter 12

Question 1

What is externality?

Answer 1

costs imposed on people who aren’t part of a transaction (not buyer or seller)

Question 2

What is market failure?

Answer 2

when the socially and economically preferred outcome doesn’t occur

Question 3

What is command and control regulation?

Answer 3

requires all emitters in an economic sector to meet a single standard

Question 4

What is carbon tax?

Answer 4

market-based approach that doesn’t tell emitters how much they can emit
emitters can emit all they want but have to pay fees to government for each ton of greenhouse gas released

Question 5

When will emitters reduce emissions until?

Answer 5

until marginal cost of reduction is equal to the carbon tax rate

Question 6

Do lower marginal cost emitters or higher marginal cost emitters make deeper cuts?

Answer 6

lower marginal cost emittors

Question 7

Is achieving economy-wide emissions target on carbon tax cheaper than conventional regulations?

Answer 7

yes

Question 8

What is a cap-and-trade system?

Answer 8

government issues fixed number of permits each year

Question 9

What do permits do in a cap-and-trade system?

Answer 9

each permit allows the holder to emit a fixed amount of greenhouse gas into atmosphere

Question 10

What is an issue with how cap-and-trade system?

Answer 10

how government issues permits

Question 11

Would a carbon tax and cap and trade system (with auctioned permits) make a large wealth transfer from consumers to government?

Answer 11

yes

Question 12

How do cap and trade systems and carbon tax reduce emissions?

Answer 12

by putting prices on emissions

Question 13

Do carbon tax and cap and trade systems raise fossil fuel prices?

Answer 13

yes

Question 14

What do carbon tax policymakers do?

Answer 14

set tax rate

Question 15

What do cap and trade policymakers do?

Answer 15

set total number of permits issued

Question 16

Is carbon tax or cap and trade the preferred climate policy?

Answer 16

cap and trade

Question 17

What are offsets?

Answer 17

actions that reduce the amount of CO2 in the atmosphere (negative emissions)

Question 18

What is a way the government can encourage emissions reductions?

Answer 18

to give people information

Question 19

What is the most important policy for addressing climate change?

Answer 19

putting a price on emissions of greenhouse gases in the atmosphere

Question 20

How does a fee and dividend approach work?

Answer 20

1) Pay a fee per ton of carbon released (same as carbon tax)
2) Costs are passed onto consumers and they consume less carbon
3) Tax that was taken is given back to consumers as a dividend
4) Predictable price on carbon incentivizes clean tech so CO2 emissions decrease

Question 21

Why aren’t conventional regulations very effective?

Answer 21

bigger company vs smaller company
not very cost-effective for all companies

Question 22

Who does fee and dividend favour?

Answer 22

lower income households

Question 23

How does carbon pricing work?

Answer 23

1) carbon is taxed at source and the price is passed to consumers
2) consumers have cost incentive to choose energy-efficient goods and services
3) consumers drive the market with their spending habits

Question 24

How does the cap and trade system work?

Answer 24

1) if you have a permit you can emit more than cap
2) have to buy permit to emit more
3) you can sell extra permits
4)have to pay more to emit more greenhouse gases

Question 25

What is the carbon fee and dividend approach?

Answer 25

1) pay a fee per ton of carbon released
2) costs are passed onto consumers and they consume less carbon
3) tax that was taken is given back to consumers as dividend
4) predictable price on carbon incentivized clean tech so carbon dioxide emissions decrease