The economic control of the environment Flashcards
What are the two ways to monitor pollution emissions
- Market based incentives approach
- Regulate by using market instruments: Pollution tax, tradable permits
The MOST effective approach:
- Regulators must gather information from polluters, as they differ
- Different rates applies to company depending on how big they are and their ability to reduce pollution, which can be beneficial and promote innovation
- Direct regulatory approach
- Imposing environmental standards
- Monitoring activities
- Government setting strict rules and limits to control pollutants or manage resources –> if not PENALTY!!
A less effective approach:
- Uniform rules does not account for differences between businesses pga fixed costs and limits
- This method can be effective for critical or urgent problems, when an immediate change in use i required.
What is the Polluter Pays Principle? 3P
- Ensures that those who cause pollution bear the cost/should be responsible for managing and reduce its impact, rather than society
- Price of goods should reflect the total cost of production incl. the environmental costs (damages)
- There should be a coordinated approach using market instruments and other environmental regulations
There are different approach on how to reach the goal of minimizing long term-pollution damage, name these approaches?
- Cost-benefit approach: Trade-off between risk level and cost to reduce pollution:
- “ Should I pay to emit ore or should I change how I produce?” Reactive VS Proactive - Precautionary prnciple: When there is high unceratinity about a potential damage, lets say you produce a new product.
- It is then better to set strict regulations when setting emission standards just to be safe (BETTER SAFE THAN SORRY)
What is Coase theorem?
The theorem suggests that polluters and affected parties can negotiate solutions without government involvement, if negotiation is easy and at low cost.
- Based on property rights, dvs right to pollute vs right to live in a healthy environment:
1. Companies have the right to pollute
2. Citizens have the right to live in an unpolluted environment
Can you give an example of coases theorem? Think about the options
One company that pollutes and citizens living near the company production site
Option 1: Companies have the right to pollute (The company have the property right)
- They will produce Qm to maximize private benefits
- As a citizen, you can negotiate with the company, offering to pay for more sustainable practices to reduce pollution, saving them healthcare costs
Option 2: Citizens have the right to live in an unpolluted environment (citizens have the property right)
- We will reach an equilibrium state which is good (Qs)
- However, the company can pay citizens to allow them to pollute more
What are the disadvantages and weaknesses of Coases theorem?
Coases theorem has weaknesses in real-world applications due to:
- High transactions costs: negotiation can be expensive, especially in complex systems when several parties are involved
- Imperfect Information: Assumes perfect information, which is rarely available
- Many participants: The theorem struggles with scenarios involving muktiple participants
- Unclear property rights: The theorem requires well-defined ownership, which is not always the case in a real-life scenario where its hard to define responsibility
What are the economic incentive instruments to alterate the use of resources?
- Direct alteration of price or cost levels
- Increasing the price of harmful behaviors through pollution charges and taxes - Indirect alteration of price/cost via financial support or subsidies
- Reduce the cost of desirable behaviors - Market creation and market support
- Government or organizations creates systems to make recycling and sustainble practices esier and more efficient
- E.g. recycling exchange platforms and recycling rules
Different charges can be imposed to encourage environmentally friendly solutions and reduce pollution, resonate about these
- Emission charges: Fees paid for emitting pollutants
- User charges: Fees for using public services or resources that have an environmental impact (like road tolls)
- Product charges: Fees imposed for products that harm the environment: like plastic bag tax
- Marketable permits: A system sets pollution limits and allows certain permits to pollute to a certain limit
- Deposit refund system: Deposit payed on potentially polluting products, which is then refunded when the product is resturned for recycling or proper disposal, like pant
When deciding which economical instrument is the best, several factors can be taken into accountability, what are these?
- Economic Efficiency
- Amount of information required
- Administrative cost
- Equity (kapital)
- Dependability
- Adaptability
- Dynamic incentives
- Political acceptability
What is MAC?
Marginal abatement cost.
- The cost of reducing one additional unit of pollution or emission
(The more emissions you want to reduce, the lower the cost)
what is the difference between taxes and uniform standard setting, related to marginal abatement cost? Als ogive the formulas
Taxes: Firms reduce their pollution until their total MAC equals the total tax payed
- It is only beneficial for companies to reduce their emissions until the tax level is reached
TACtax= OXS1+ OBS2+ OYS3
Uniform standard setting: Every company need to reduce their emissions with the same amount of pollution S2
- Does not take into account that it can be harder for some companies to reduce the same amount of pollutants
TACust= OAS2 + OBS2 + OCS2
OBS! Tax is more flexible and is better than standard
What is TAC?
Total abatement cost
What can we do if a company does not respect the rules of pollution levels?
Insert a penalty!!, After Qp, the company will lose marginal net profit, making companies stop at that level
What information is required to set the tax?
- Firms output of goods
- Pollution dose that the output produces
- Any long-term accumulation of pollution
- Human exposure to this pollution
- Damage response of pollution
- Change in the cost of pollution damage over time MEC
What is price elasticity?
Price elasticity measures how sensitive demand or supply is to price changes.
High elasticity= Changes in price affects the demand a lot
- Low value, common items mainly
Low elasticity= Changes in price does not affect the demand that much
- High value, unique items
