Environmental economics Flashcards
What is carbon tax?
An indirect tax on producers that raises the price of emissions
What is the tragedy of commons?
When people use and benefit from a common pool resource such as grazing land without regard to the effects on others
What are advantages of the carbon tax?
Mandates a specific price on carbon
Makes the polluter pay and internalises the externality
Incentivises firms to lower their emissions and for consumers to change their
behaviour
Revenue generated can be spent on other environmental initiatives
What are disadvantages of the carbon tax?
Problems determining the size of the tax which makes it hard to asses the true cost of CO2 emissions and climate change
Demand may be price inelastic so tax may have little impact on pollution
Reluctance to impose if it could cause a loss of international competitiveness
Could be regressive
Risk of tax evasion
Countries may free ride - let others tax and yet gain benefits
What is the tradable permit scheme?
It is a market based system for reducing greenhouse gas emissions
How does the tradeable permit scheme work?
The government sets a limit on the total amount of emissions that can be produced in a given period
Companies are then issued permits to emit a certain amount of CO2
If a company emits less than its allowed amount it can sell its surplus allowances to another company that has exceeded its limit
This incentivises firms to emit less because they can increase their revenue by selling permits because if they pollute they will have to buy more permits adding to their costs
What are other green policies?
Fuel duty, air passenger duty, landfill tax
Subsidies - for green energy or home insulation
Regulation - electric vehichles, renewable energy, energy labelling for homes
Behavioural changes - waste reduction and circular economy
Voluntary carbon footprint offsetting emissions - tree planting
