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