ECON 347

MD

marginal damage, or amount of pollution per output (increases at increasing rate)

value of damage done

marginal demand schedule, willingness to pay, measurement problem

working group 1

physical science basis of climate change

efficiency requirement re: externalities

polluter must pay an amount that reflects input's value as a scarce resource that can be used for other activities

PMB

private marginal benefit to producer at each level of output (declining or flat on open market)

PMC

private marginal cost reflects payments made by the producer for inputs (increasing)

taxes and negative externalities

should levy tax on polluter to make up for fact that input prices are too low

inefficiency and externalities

since the producer is paying zero price, they produce in inefficiently large quantities

working group 2

climate change impacts, adaptation, vulnerability

South Korea

2018, said ideally would limit to 1.5 instead in order to prevent coral reef destruction and melting of Arctic ice

Montreal Protocol 1987

24 countries agreed to decrease CFCs and halons to 50%, not that successful

Paris Agreement

COP 21, 2015, 195 countries, agreed to limit global warming below 2 degrees to come into effect in 2020, developing countries also have to limit emissions

IPCC

Intergovernmental Panel on Climate Change established by the UNEP and WMO in 1988

total cost of emissions reduction minimized when

MAC is equal across all polluters and is cost effective

emissions should be reduced as long as

MB from reduction > MAC

polycentric approach

Ostrom- countries should endogenously cluster themselves into a like coalition wherein they act as unit for a lesser coordination burden and so trust, commitment and reciprocity are more effectively organized

SMC =

PMC + MD

structure of IPCC

UN parent organizations, intergovernmental panel (195 countries), diff working groups, independent scientists

pollution haven

a country that attracts polluting industries because of its weak environmental laws

new MC schedule after tax

adding cd to PMC at each level of output/shift up of PMC by cd

CO2

an anthropogenic GHG that represents a negative externality

uniform price applied to all emissions

appropriate as damage/ton of emissions is the same

environmental Kuznets Curve

as countries get richer they cause more environmental degradation until they get even richer and then they want to pay for protection

subsidies and negative externalities

assuming the # of polluting firms is fixed, efficiency can be obtained by paying polluter a subsidy to not pollute

tax on CFCs US

base rate, then different taxes on various chemicals: tax rate = base rate x ozone depletion potential

abatement activities

changing production technology, switching to cleaner outputs, reducing output

Montreal Protocol's success due to

clear link between pollutants and damage, evidence accepted by political leaders, relatively few compounds responsible, compensation method for developing countries, international competition helped because they switched to substitutes, trading of emission reduction credits among countries

design of good GHG pricing schemes

comprehensive coverage of emissions, uniform price, stable and predictable prices, prices aligned with damages or goals, maximize fiscal dividend, targeted compensation schemes

Kyoto Protocol

controlling global warming by setting greenhouse gas emissions targets for developed countries

Montreal 1990

countries agreed to phase them out by 2000, as well as CCIs and methyl chloroform, more successful

cross working group collaboration

diff working groups collaborating on reports

for two polluters

each reduces emissions as long as fees avoided are greater than the additional abatement costs incurred

problems with pigouvian taxes

finding the correct rate is difficult

biological diversity

genetic, species, and ecosystem diversity- gives systems means to adapt

emission fees

give incentives to find ways to reduce pollution without reducing output, are taxes on each unit of pollutant rather than output

if permits are auctioned

govs could recycle revenue in the form of tax cuts (or investment)

implicit carbon taxes in Canada

higher than US, lower than Europe, inversely related to carbon intensity of fuel, provides fiscal room to raise taxes to keep pace w inflation and provide strong incentives to reduce emissions

Coase theorem

if property rights are assigned, the costs of bargaining are low, and the owners of resources can identify the source of damages to their property and legally prevent damages, then an efficient solution to externality can be achieved w/out gov intervention

coordination failure

if the world is stuck in an NE that is worse than optimal, need sanctions and negotiations to get out

provincial adoption of federal policy

implementation of energy efficient incentives, subsidies to promote renewables and tech, consumer info about how to reduce GHGs, BC carbon tax

comprehensive coverage of emissions

implementing pricing in proportion to carbon content

environmental standards globally

in low/mid income countries often much more lax, but are opposed to foreign standards because they could be used as protectionist policies and are expensive

carbon tax benefits

increase in revenue and climate objectives without altering economy, cost-effectively targets those who are imposing negative externalities, reduction of carbon dioxide

carbon tax

indirect tax levied on the carbon content of fuels, establishes a known price/unit emission and emission levels are determined by sources

targeted compensation schemes for vulnerable households and firms

international price floor agreements for protection

command and control regulations

laws and regulations that control activities and industries through the use of subsidies and penalties prescribed by the government

problems with subsidies

lead to higher profits, so more firms may join, subsidies have to be raised by taxes, which distorts people's incentives, they may be ethically undesirable

social conventions

littering is bad

international coordination main problem

many don't want to voluntarily reduce carbon, would rather free ride, climate not first priority

MAC

marginal abatement costs

how tax raises producer's MC

must pay suppliers of inputs (PMC) and tax collector (cd/MD)

Nash equilibrium

no unilateral incentive to change outcome

working group 3

options for limiting emissions and mitigating climate change

task force

overseas GHG inventory programme

PMB >. PMC

producer has an incentive to produce an additional unit of output

maximizing net benefits after tax

producer produces up to output at which MB = MC

burden of TEP

producers and consumers will share burden as there will be a loss of surpluses in both

TEP system effects

product prices will increase and quantities will decrease as producers must cut production or incur abatement costs

SMB > SMC

production should occur as long as this is true

CFCs Canada

production stopped in 1993, consumption banned in 1995, quota system

stable and predictable emission prices

promote cost effectiveness through incremental abatement costs, help to establish long-term signals to promote clean tech investments, provisions to prevent decline in prices needed (incentives)

distinction between public goods and externalities

public goods are intentional, externalities are not

maximizing fiscal dividend

raising revenues and using them to lower taxes or to fund socially desirable spending

total cost can be lowered by

reallocating burden of emissions reduction between polluter as long as MACs differ

carbon tax what kind of tax

regressive, which disproportionately targets low income ppl, so must be paid back w tax revenues

consequences of climate change

rising sea levels, arctic sea ice decline (birds, polar bears), extreme weather, extinction

Canadian GHG policies

subsidies to renewable energy and ethanol, tech incentives for sequestration, moral suasion to reduce, voluntary agreements with industry, incentives to increase energy efficiency

pigouvian tax

tax levied on each unit of a polluter's output in an amount = tp MD it inflicts at the efficient level of output

pigovian tax

tax that corrects effects of negative externalities, set equal to the social cost of said externality

if permits are given away rather than auctioned

the loss of producer surplus can be reduced

TSPs

total suspended particles, accepted to do the most harm, need to use cross-sectional or time analysis series to measure, infant mortality rates

global warming potential

the relative ability of one molecule of a greenhouse gas to contribute to warming

role of IPCC

to assess info relevant to risk of climate change and its impacts, should be neutral re: policy and doesn't undertake new research

coordination challenge

to imagine and create and institution that can build trust and commitment across countries

TEPs

transferable emission permits create incentives for firms to lower CO2 emissions by increasing profits through the sale of extra permits, market sets the carbon price while emission levels are set by the cap, auctioned TEPs raise revenue to reduce taxes or be invested in R&D

CFCs US

transferable production quotas/production ceilings, however rivals started acting as monopolists so prices were raised,

coordination game

voluntary, self enforcing, many equilibria with no single worst/best case outcome

mergers

way to internalize externality by combining transmitter and recipient

negative externality problem

when someone's pollution makes another person worse off

externality

when the outcome of an activity directly affects the welfare of another in a way not transmitted by market prices