Polices I Flashcards
Public Policy (Definition)
Use of legal, fiscal and other govermet mechanism to cause actions by firms, households, and others levels of goverment
Action (Definition)
Chnage of technology, behavior or management practice by a firm or household form what it otherwise would have been
Policy -> Action
Climate-energy policy alternatives (Chart)
Economic efficiency (Definition)
Policy is a low cost to society relative to other polices- equi-marginal principle
Equi-marginal-principle (Definition)
Minimize total costs of achieving an objective (GHG reduction) policy design ensures every houshold and fimr face same price for its last(marginal) unit of GHG reduced
Political acceptable(Definition)
Policy is perceived as justified and fair by many, and those opposed are:
1- small in number
2-Compensate
3- Counterbalanced by policy supporters
Administrative feasibility (Definition)
Policy does not involve significant bureaucratic expansion or complexity.
Proof(Definition)
If entity A faces costs for the last unit of GHG reduced than entity B, then if B reduces one more unit and A one les. the same total GHG reduction will be achieved at lower total cost
Similar adjustments can be made until all entities face the same marginal for GHG reduction- achieving the equi-marginal principle and thus minimizing the total societal cost pf a given outcome.
Prescripted regulations “Command and control”
Goverment dictates building design, technology or energy form and applied this identically to each emitter (Household, firm)
Technology standard (Definition)
Goverments sets rules on technology
Exp. Best available control technology for SO2
Energy standard (Definition)
Governments set energy requirements
Exp. Fuel sulfur content regulator
Mandate reduction (Definition)
Govermenst tells each firm to reduce by same amount
Total =, Average & Marginal Cost Example
-We’re overbooked, and I need 5 passengers to volunteer to take a later flight.
-No one volunteers, I start offering vouchers.
Efficiency problem : prescriptive regulators
Government specifies a 50 T reduction for each firm.
Marginal abatement costs rise faster for Firm B than for Firm A.
The policy violates equi- marginal principles: same reduction at lower total cost if Firm B does less and Firm A more, until their marginal abatement costs are equal.
Emission (Crabon) pricing polices
Tax on technology, energy use, material use (water,plastic bags) or material waste (emissions, effluents, solid waste, toxics).
or Cap-and-trade
Cap-and-trade
Cap emission with tradable permits
Emission (carbon) pricing polices (How it works?)
Firm and tevhnologies can oay tax (or buy permits) or reduce use of technology, energy, material or output of waste and pay less tax.
Those who find it too expensive to reduce (high marginal abatement costs) will pay the tax (or buy permits)
Examples of economically efficient
taxation and cap-trade achieve equi-marginal principles
Tax achieves equi-marginal principles: economically efficient (Example)
Government sets tax rate T
Firm A abates more than frim B
Total abatement is still 100
Policy satisfies equi-marginal principle to minimize total cost.
Cap-and-tarade achieves equi-marginal principle : economically efficient (Example)
Goverments sets cap and allocates permits such that Firm A and B must both reduce emissions 50T (50*2 = 100T)
Firm A incentivized to do extra abatement and sell surplus permit to B which does less. Permit trading price is P.
Policy satisfies equi-marginal primciple to minimize total cost
Tax and cap-&-trade lead to same outcome at same cost
Tax vs cap&trade
From cost perspective, tax and cap&trade results in equivalent outcomes.
But one policy has price uncertantly and the other emission uncertanty.
Goverments direct action with assets and employees it controls
Goverments efforts change assest and people over which it has direct influence (Building, equipment, infrstructure, employees).
Goverment direct action with assets and emplyees it controls (Examples)
Goverment spending represents a large portion of the economy
Goverment procurement polices can have impact on enviroment
Goverment can also fund and research and develop (R&D)
Polices to induce voluntary action
Efforst by goverment to convince firms and housholds to vonutarly act different
Exp. Voluntraily internilizing externalities
(Individuals or firms take responsibility for the societal cost of their action
Information programs focused on private benefits of action
Explain private benefits of enviromentally responsible choices.
Exp. Ebergy Star / EnergUide appliance labels.
Moral suasion programs focused on social benefits of action
Strategies to encouraging individuals or organizations to take action by appealing to their sense of morality and social benefit, rather than through financial incentives or strict regulations
Exp. Ocean-wise fish levels, fair trade coffee
Compulsory Measures
Mandatory actions imposed by goverments that require compliance
Regulations Type
Prescriptive regulations
Flexible Regulations
Carbon Pricing
Economic instrument to put a price on carbon emissions.
Cap-and-trade
Carbon Tax
Non-Compulsory Measures
These rely on incentives, information, and voluntary participation rather than mandates
Exp. Information Campaigns, Labels (Exp. Energy Star certification), Subsides, Government Action
Prescribe Regulations (Definition)
Strict, detailed rules that specify what actions must be taken or avoid.
Exp. Mandating specific technologies or emission standards for industries
Flexible Regulations (Definition)
These allows some flexibility in how targets are met, enabling innovation.
Exp. Allowing companies to choose between installing new technologies or offsetting emission by funding green projects
Abatement (Definition)
Reduction or elimination of harmful emissions or pollutants
Marginal Abatement Cost(MAC) (Definition)
MAC is the cost of reducing one additional unit of emission or pollution.
