Policies - Tradable Pollution Permits

Question 1

Diagrams analysis

Answer 1

• regulation increases the firm’s it’s of production - perfectly inelastic supply curve to shift left. - market price rises P1 - P2 - quantity will also decrease Q1 - Q2 - this aims to solve the problem of over consumption/over production of CO2 emissions. -there should be a more socially efficient level of production and consumption is not longer overproduction of harmful emissions. Market failure corrected. More allocatively efficient. -this in turn should reduce the welfare loss to society. -if there is also increase n demand for the permits demand will decrease from D1 - D2 and price will increase from P2 - P3.

Question 2

Tradable pollution permits define

Answer 2

Are a market based approach to the ask of limiting pollution emissions. They aim to internalise the external costs generated by an activity in order to make the polluter pay for those external costs.

Question 3

Tradable Pollution Permit Diagram

Answer 3

Question 4

Advantages of Tradable Pollution Permits

Answer 4

• Internalises the external costs
• Efficient way to cut emissions
• Cost of monitoring pollution is lower
• Revenue generated can be re-cycled

Question 5

Disadvantages of Tradable Pollution Permits

Answer 5

• What is an acceptable limit?
• Too many permits = no scarcity
• Cost of policing
• Investing & Employment consequences
• Recession = output falls = CO2 falls
• Traded internationally LEDC’s - MEDC’s.
• Difficult to measure progress