Chapter 12 Flashcards
What is externality?
costs imposed on people who aren’t part of a transaction (not buyer or seller)
What is market failure?
when the socially and economically preferred outcome doesn’t occur
What is command and control regulation?
requires all emitters in an economic sector to meet a single standard
What is carbon tax?
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
When will emitters reduce emissions until?
until marginal cost of reduction is equal to the carbon tax rate
Do lower marginal cost emitters or higher marginal cost emitters make deeper cuts?
lower marginal cost emittors
Is achieving economy-wide emissions target on carbon tax cheaper than conventional regulations?
yes
What is a cap-and-trade system?
government issues fixed number of permits each year
What do permits do in a cap-and-trade system?
each permit allows the holder to emit a fixed amount of greenhouse gas into atmosphere
What is an issue with how cap-and-trade system?
how government issues permits
Would a carbon tax and cap and trade system (with auctioned permits) make a large wealth transfer from consumers to government?
yes
How do cap and trade systems and carbon tax reduce emissions?
by putting prices on emissions
Do carbon tax and cap and trade systems raise fossil fuel prices?
yes
What do carbon tax policymakers do?
set tax rate
What do cap and trade policymakers do?
set total number of permits issued
Is carbon tax or cap and trade the preferred climate policy?
cap and trade
What are offsets?
actions that reduce the amount of CO2 in the atmosphere (negative emissions)
What is a way the government can encourage emissions reductions?
to give people information
What is the most important policy for addressing climate change?
putting a price on emissions of greenhouse gases in the atmosphere
How does a fee and dividend approach work?
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
Why aren’t conventional regulations very effective?
bigger company vs smaller company
not very cost-effective for all companies
Who does fee and dividend favour?
lower income households
How does carbon pricing work?
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
How does the cap and trade system work?
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
What is the carbon fee and dividend approach?
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
