Section 8: Environmental Targets

Question 1

The Marginal Damage Cost (MDC) depicts the relationship between ____ and the ____ caused to society

Answer 1

quantity of pollutant and the damage

Question 2

Name the 2 ways we measure the quantity of pollutant

Answer 2

1. Emissions (in tons)

2. Concentration (in ppm)

Question 3

Why does the MDC slope upwards?

Answer 3

As we emit more of the pollutant, more damages are caused to society by that pollutant

Question 4

What factors influence the shape of the marginal damage cost curve?

Answer 4

• Cultural values in the region
• Type of pollutant
• Assimilative capacity of pollutant
• Number of people affected

Question 5

What is the marginal abatement cost (MAC) and why does it slope downwards?

Answer 5

The cost to abate the next unit of emissions

It slopes downward because the more pollutant we emit, the less it costs to abate those emissions

Question 6

The total MAC is the ____ sum of MACs across agents

Answer 6

Horizontal

Question 7

Name a few ways to reduce emissions

Answer 7

• Reduce production
• Change inputs (different fuels)
• Altering production technology (that is more efficient)
• Treating emissions (scrubbing or sequestering)
• Changing source location (move to rural area)

Question 8

Where does “optimal pollution” occur? Why is this amount of emissions optimal?

Answer 8

When the MDC intersects the MAC. This is efficient because there is no dead-weight loss

Question 9

What are the 4 limitations of “optimal” pollution analysis

Answer 9

1. Uncertainty in MDC and MAC curves
2. Assumes weak sustainability
3. Ignores distribution of costs and benefits (equity)
4. Ignores the marginal utility of money (different incomes)

Question 10

Name 3 alternatives to the optimal pollution model

Answer 10

1. Show MAC and MDC with uncertainty (upper bound and lower bound)
2. Set a safe minimum standard (SMS) (e.g. Less than 2 degrees of warming from GHGs)
3. Set targets between whats unaffordable and the safe minimum standard

Question 11

What is the second equimarginal principle? Where on the graph is abatement cost minimized?

Answer 11

The marginal cost of the last unit abated is the same for all regulated agents

The intersection of the 2 MACs

Question 12

Why is the second equimarginal principle important?

Answer 12

Since firms have different MAC functions, enforcing the same pollution levels can result in a dead-weight loss

Question 13

If a firm has abated to optimal pollution levels, what change would incentivize them to abate even further

Answer 13

Increased MDC or decreased MAC