LS21-22 - TPP, Regulation Flashcards
What are tradable pollution permits?
The government allocates pollution permits to firms. The permits allow firms to pollute to the limit set. These permits can be traded so they are known as tradable pollution permits
How do TPPs punish heavy polluters and reward low polluters?
The government monitors the emissions of firms.
If firms pollute below the levels set, permits can be sold to generate revenues.
If a firm breaks the pollution limit, they face fines and must purchase pollution permits
What are the advantages of the emissions trade scheme?
Markets created
Incentivises reducing carbon emissions
Cleaner firms rewarded
Polluter firms are punished
Revenue rises by selling permits
How are markets created by the emission trade scheme?
The market is created for buying and selling pollution permits. Price mechanism internalises external costs of carbon emissions
How do emissions trade scheme incentivise reducing carbon emissions?
Incentivise investment in pollution reducing technology
Selling or banking permits incentivise reducing carbon emissions
How do emissions trade schemes reward cleaner firms and punish polluter firms?
Revenue from selling permits for cleaner firms
Fines and purchasing permits for polluter firms
Why may emissions trading scheme be preferred over a carbon tax?
All firms pay carbon tax no matter their carbon output. Therefore, the tax does not reward clean firms and punish polluter firms
What is regulation?
Regulation are rules or laws enacted by the government that must be followed by economic agents. It is used to encourage a change in behaviour
What are the two types of regulations?
Command
Control
What are the different types of command regulations with examples?
Bans (Public smoking ban)
Limits (Age limit on alcohol)
Caps (Carbon Emissions Caps)
Compulsory Actions (Graphic Health Warnings)
What are the different types of control regulations with examples?
Enforcement (Police Force)
Punishment (Fines)
Why do smoking bands correct negative externalities?
By making smoking inconvenient, it discourages consumers and so reduces negative externalities. It prevents third parties from suffering
How do information gaps affect the emissions trading scheme?
If there is an information gap, too little or too many permits could be issued
Too few results in lower international competitiveness
Too many give little incentive to lower pollution
Why do consumers have lower benefit because of the emissions trading scheme?
Producers may try to pass the added cost on to consumers
Why does the emissions trading scheme lower international competitiveness?
Competition firms in other regions that are not currently subject to emissions rating schemes have higher productivity and so are more competitive
How does regulation attempt to correct market failure?
Incentive towards social optimal level
Remove of welfare loss/gain
What are the disadvantages of regulation?
Cost
Setting the right level is difficult
Black Market Activity
Unintended Consequences
What is the cost of implementing regulation?
Regulation is costly in two aspects: administration and enforcement
Why may black markets arise due to regulation?
To avoid regulatory fines and maintain a high profit margin, firms may use the black market to sell avoiding regulations
