Market and gov failure

Question 1

Mixed externalities definition

Answer 1

simultaneously creates negative and positive externalities

Question 2

Mixed externalities example

Answer 2

Electricity production in UK: Gas=most, wind/solar and nuclear 2nd most used, wind power is increasingly being used in the UK

Question 3

Result of mixed externalities for electricity production via renewable energy
- Example of its negative externalities
-Example of its positive externalities

Answer 3

Negative externalities
- Wind energy is not constant. With a traditional power station (nuclear / coal) you can keep a constant power output, but wind is dependent on the weather. In a period of still wind, power output can fall to nothing. This means the national grid cannot rely on wind, but has to have back up energy sources
- Sight pollution and decommissioning costs- such as disassembly of turbines when they become obsolete.

Positive externalities:
- Reduced and improved air quality
- Energy diversification and security- scarce resources not used up fully

Question 4

Example of policy aimed to reduce pollution

Answer 4

Carbon tax on imported steel and cement will incur a new carbon tax from 2027 under UK plans designed to support domestic producers and reduce emissions

Question 5

Define carbon tax

Answer 5

tax on carbon aimed to internalise negative external costs associated with climate change, encouraging firms to create more greener production

Question 6

Arguments against carbon tax

Answer 6

• Income inequality- Firms pass on costs to consumers, leads to a regressiveeffect on lower income households
• Impact- global intervention needed, 90% of global steel production faces no carbon cost, carbon emissions are global public bad

Question 6

Arguments for Carbon tax

Answer 6

• Polluter pays principle- putting a price on carbon emissions, a carbon tax ensures that the costs of climate change are reflected in market prices, leading to more sustainable and environmentally responsible behaviour
• Revenue generation- Carbon taxes generate substantial revenue that can be used to fund various initiatives related to climat3e change mitigation and adaptations, such as renewable projects- HYOPOTHECATION