climate policy Flashcards
two types of federal climate policies
climate mitigation policy
-reduce emissions and remove gas from air
- climate adaption and resilience policy
- building resilience to avoid full damages of climate change impacts
energy uses climate mitigation policies most.
policies to reduce greenhouse emissions
-carbon pricing
- tech and innovate subsidies
-performance standards
-procurement policy
-international agreements
carbon pricing
requires payment for each ton of co2 emitted
-price increases overtime
-worse fuels are charged more
-incentivizing
-flexible emission cut opportunities
-incorporates cost of carbon
-political
performance standards
a set of benchmarks and standards that firms must meet
-varies for each industry, can be MPG based or energy output based etc
- flexible and even tradeable
increases costs of using high emission-low performance technology
- less impact on consumers, usually up front costs
tech deployment subsidies
financial incentive to encourage an activity
- commonly: tax credits, loan guarentees, feed in tariffs, reverse auctions
- incentive to make low or no emission products
- motivates investments
- cost effective
public funding for tech innovation
investments in R&D for emissions reduction tech
-federal and state funding to aid development
- such as energy act of 2020
procurement policies
policies that encourage or require govt agencies to invest and purchase in sustainable goods
- creates a demand pull for emerging tech and bolsters clean tech markets
international agreements
global climate strategies designed to leverage reciprocal action that reduces emissions
-voluntary or binding
-paris agreement allows countries to set own target and incorporates accountability mechanisms
factors in evaluating effective policies
-is it effective in achieving emission goals
-is it cost effective
- who holds the impacts and costs of it the most
- does it create jobs
-is it durable in political change
- does it drive new tech
- how does it affect international
- how does it interact with other policies
economic incentive based policies
relies on market forces
does not enforce action
enforces resposibility for consequences
maximizes incentives
holds equimarginal principle
difficult to adjust incentives to equilibrium
prescriptive regulatory policies
uses regulatory requirements to set standards and limits for emissions
greater certainty in pollution output
compliance
not equimarginal
first equimarginal principle
net total benefits are maximized when
marginal benefits = marginal damages
helps to determine optimal abatement level
second equimarginal principle
the most cost effective abatement policy will equate marginal abatement costs across all firms
abatement
to reduce emissions
command and control
policy that sets limits and rules for emissions and you are penalized if they are broken
sets emission limits and requires firms to use clean tech
pigouvian tax
a tax applied and based on damages of the externalities from the process , of emissions
carbon tax
coase’s theorem
private bargaining will result in efficient resolution of negative externalities without need for govt intervention
creates property rights
transaction costs and market power are issues
two overall ways to oversee emissions with climate mitigation policy
to set the price of carbon or
to cap the quantity of carbon emitted
one will adjust for the other
price: quantity released uncertain
cap: market prices uncertain
when to use carbon tax
if the goal is to have a predictable long term incentive for clean energy and green tech investments…
stable market price is best
cap and trade
a system where govt sets a limit (cap) on emissions and companies are allowed to trade permits for emitting pollutants
when to use cap and trade
when the goal is to reduce emissions by a certain amount in a time period and you want to prioritize climate change
what is created when carbon tax or cap and trade is not set efficiently
deadweight loss: societal costs
if the marginal benefit curve is flatter…
a carbon tax is better option
quantity takes more DWL
if marginal benefit curve is steeper …
a cap and trade system is better
price takes on more DWL
complications of tax and permits
marginal cost and benefit curve
non linear damage function means there is a tipping point for climate change
co pollutants
moving patterns
abatement costs vs hotspots
the derivative of a total cost equation equals…
how does this relate to EMP 1
what is the abatement quantity and cost for a firm?
the marginal cost equation
you want marginal damage = marginal benefits
so take derivative of total damage and benefit equations and find the equilibrium m, where net total benefits will be maximized
m is the scope of abatement: if m* is 25 miles, then 25 miles must not be polluted to save most money for firm
how does EMP 2 work in theory: calculating abatement plans and costs
how should abatements be calculated across multiple firms?
firm 1 and firm 2 must both abate emissions, say 25 miles of river.
two options: (think equality vs equity…)
have both firms abate emissions equally:
find total abatement cost for each firm and sum it up and then divide in half to see how much the abatement costs each firm if they abate same amount
find most cost-effective abatement plan:
set both firms’ marginal abatement cost equal to each other
solve for the variable, perhaps you get 2a=a
set these vals equal to total abatement plan
2a+a=25 miles … solve for a
if a = 8, then one firm abates 8 miles and the other abates 8*2 miles = 16 miles
if you plug this in to each TAC equation the total cost should be LESS than the first method gets you
in EMP equations, a is equal to
abatement
TAC = total abatement cost
MAC: marginal abatement cost
remember MAC, or marginal damage equation, is the derivative of the TAC equation
following a long example of EMP and abatement math;
remember. firms can either pay to abate or pollute and pay a tax.
once a firm pays to abate the cost effective abatement of emissions, from then on, additional emissions are cheaper to release and then pay a tax on
say we want to reduce 50 units emissions down to 20 units emissions, for two firms.
TAC1 = 100a^2. TAC2= 50a^2
both firms TC = 100a^2 + 50a^2
both firms TB = 9000a^2 - 150a^2
both firms MAC or MD = 300a
both firms MAB = 18000a - 300a
what we will do :
- follow EMP 1 and do MAC = MAB.
MAC, or derivative, we found is 300a
MAB, or derivative TB, we found 18000a-300a
300a = 18000a - 300a
a* = 30
since we know that we want to reduce emissions to 20 units, this is confirmed that a* is the 30 units we must reduce to get there. - dividing the abatement up boils down to:
- command and control, where you calculate total abatement costs for all firms and divide up the reductions as a goverment
-finding the cost effective abatement methods, which can be enforced with a pigouvian tax or permits (cap and trade)
command and control finds:
TAC = 11(30/2)^2 + 50(30/2)^2 = $33750 cost of abatement that govt would have firms pay
cost effective, or EMP2 plan:
MAC1 = MAC2
200a=100a. 2a1 = a2
a1 = 10 a2 = 20
TAC1 = 100(10)^2 = 10k. TAC2 = 50(20)^2 = 20k
cost-effective TAC = $30,000
to enforce cost effective $30k abatement cost, we do tax or we do permit.
- pigouvian tax
goal: emissions tax = marginal damage
knowing a1 = 10
MAC1 = 200(10) = $2k
knowing a2 is 20
MAC2 = 100(20) = $2k also
so the tax should be set at $2000 - cap and trade
find price of a permit for abatement of 30 units, which ineffectively could be 15 units abatement each firm.
for firm 1 = after 10 units are abated, it would be cheaper to just pay next 5 units through permit than to continue abating
firm 2 = they can make $ selling their permits because they can abate more and save money
basically once you hit the price point of the tax/permit, abating past that price point means a price that is greater than that tax/permit price, so you would rather just pollute then.
optimal tax = optimal permit price
