BU Carbon Emissions Domestic & Global Considerations Discussion
Description
3 attachmentsSlide 1 of 3attachment_1attachment_1attachment_2attachment_2attachment_3attachment_3.slider-slide > img { width: 100%; display: block; }
.slider-slide > img:focus { margin: auto; }
Unformatted Attachment Preview
Economy and Environment Assignment Writing Guidelines
Objectives
In addition to developing students analytical and critical thinking skills, research skills, data and
information management, and even time management skills, the main goal of writing term paper
in this course is to apply the theoretical concepts and models of environmental economics to the
real-life insights, policies, and decisions. The term paper will focus on a specific issue in the
theories of environmental economics in the Canadian, more specifically in the provincial
(Ontario) and municipal (GTA) context1 rather than addressing various and general country-wide
issues at the same time. It should start immediately with analyzing and discussing the given
topics (see the Term paper topics). Your analysis, evaluations and critique, and explanations
stressing how theoretical models and concepts are applied to real life would be more valuable. It
is also very important to discuss the underlying theories, concepts and assumptions.
Format
The term paper should be structured as follows:
Title, student and course information (cover page)
Introduction
Discussion and Analysis (the main content of the term paper)
Summary and Conclusion
References (at least 5 resources)
The term paper should be in a range of 1500-2000 words (excluding cover page, references, and
appendix) and should be typed in Times New Roman with 12 font-size, and double-spaced and
should contain separate pages for the cover, references, and appendix, if necessary.
Figures and tables should be inserted in the text where appropriate. If you use material from the
web and other sources, this should be cited and the web address should be included in the
reference list. APA format is used for citation and references.
However, some topics, such as the Deep Water Horizon accident or Hurricane Katarina, might be in the
global context.
1
Page 1! of 1!
Chapter 12
Emission Taxes and Subsidies
© 2015 McGraw-Hill Ryerson Ltd.
1
Learning Objectives
LO1
LO2
LO3
LO4
LO5
LO6
Explain and show graphically how a polluter responds to an emission
tax set by the government regulator and show how to calculate
the polluters compliance costs.
Derive the socially efficient tax rate and illustrate graphically the
costs to the polluter, the benefits to society, and the net social
benefits.
Prove that any tax rate set by the government is cost efficient.
Explain how an emission tax differs from a uniform standard in
terms of social compliance costs and cost effectiveness.
Contrast the impact of an emission tax with that standards with
respect to government revenues, incentives to innovate,
enforcement costs, and distributional impacts.
Explain how an emission subsidy works and how it differs from an
emission tax.
Carbon Tax in Canada
https://globalnews.ca/news/4291256/carbon-tax-do-they-work/
3
Emission Tax
The essence of the tax approach is to provide an incentive for the
polluters themselves to find the best way to reduce emissions, rather
than having a central authority determine how it should be done.
Example: the British Columbia government has imposed a carbon tax in
2008 on over 75 percent of the greenhouse gases emitted in the
province as a means of reducing carbon dioxide emissions and
ameliorating global warming.
Once pollution is priced by the tax, those who release it will have an
incentive to release less of it to avoid paying the tax.
LO1
Calculating the Total Polluters Costs
Suppose MAC = 200 4E
Pollution Tax: $100 per tonne
Total Polluters Costs = Total Abatement Costs + Total Tax Bill
Fill out the handout
5
The Basic Economics of an Emission Taxes
Emissions
(tonnes/month)
50
45
40
35
30
25
20
15
10
5
0
LO1
MAC
0
20
40
60
80
100
120
140
160
180
200
TAC
0
50
200
450
800
1,250
1,800
2,450
3,200
4,050
5,000
Total tax bill
Total
at tax of
polluter’s
$100/tonne
costs ($)
5,000
5,000
4,500
4,550
4,000
4,200
3,500
3,950
3,000
3,800
2,500
3,750
2,000
3,800
1,500
3,950
1,000
4,200
500
4,550
0
5,000
© 2015 McGraw-Hill Ryerson Ltd.
6
Tax and Emissions
$
$200
MAC = 200 4E
Tax = $100/tonne
a
b
25
50 (E0)
Emissions (tonnes/month)
7
The Basic Economics of Emission Taxes
The numbers refer to a single source of a particular pollutant who has
a marginal abatement cost function of MAC=200 – 4E.
With no regulation, the polluter emits at E0 50 tonnes/month and pays
a tax bill of $5,000 (i.e., 50 tonnes times $100); if it were to cut
emissions to 45 tonnes it would cost $50 in abatement costs, but on
the other hand it would save $500 in taxesclearly a good move.
Following this logic, it could improve its bottom line by continuing to
reduce emissions as long as the tax rate is above marginal abatement
costs.
This is shown graphically as the point where the tax rate intersects the
polluters MAC curve. Area a is the tax bill; area b shows the total
abatement costs
The Cost of Pollution
After the polluter has reduced its emissions to 25 tonnes/month,
its total (monthly) tax bill will be $2,500. Its monthly abatement
costs will be $1,250.
Graphically, total abatement costs correspond to the area under
the marginal abatement cost function, labelled b in the figure.
The total tax bill is equal to emissions times tax rate, or the
rectangle labelled a. Total private cost is thus area ( a + b ).
Emission taxes raise the costs of the firm. Therefore, to
maximize profits, the firm must do whatever it can to minimize
its total costs inclusive of the emission taxes.
LO1
The Socially Efficient Tax
In competitive situations, higher taxes will bring about
greater reductions in emissions, but just how high should
the tax be set?
If we know the marginal abatement cost (MAC) and marginal
damage (MD) function, the economists answer is to set the
tax so as to produce the efficient level of emissions, as in
Figure 12-2 on the next slide.
LO2
A Socially Efficient Emission Tax
?
?
?
The socially efficient equilibrium is reached with a tax set equal to $100 per tonne.
This is the price at which MD MAC. The polluters private costs of compliance are its total tax
bill paid, area ( a + b + c + d ), plus its total abatement costs, area e.
Total social costs of compliance are just the TAC. The net benefit of the tax is the total damages
forgone, area ( e + f ) net of TAC. This is area f.
LO2
Private and Social Costs
In the Figure, private costs are, respectively, area e which is
1/2[(100×25)] = $1250, plus the tax bill which is, areas ( a + b + c + d )
and totals $3750.
However private costs of compliance do not represent the real
resource cost society incurs as a result of levying the emission tax. It is
social costs that society is interested in.
Taxes are actually transfer payments, payments made by the polluters
to the public sector and eventually to those in society who are
benefited by the resulting public expenditures.
The polluter itself may be a recipient of some of these benefits.
Transfer payments are therefore not a social cost of the policy. Thus,
the social costs of compliance are area e, the polluters total
abatement costs.
LO2
© 2015 McGraw-Hill Ryerson Ltd.
12
Net Cost to Society
Net social benefits of a policy are defined as the total damages forgone
net of the social costs of compliance.
The reduction of emissions from E0=50 to E*=25 tonnes per month has
eliminated damages of (e + f) which are the net gains to victims, given
by the difference between areas (b + d + e + f) minus (b + d) = $3750.
Remaining damages are (b + d), an amount less than the firm pays in
taxes.
This underscores the idea that the emission tax is based on the right to
use environmental resources, not on the notion of compensation.
LO2
Emission Taxes and Cost-Effectiveness
The imposition of an emission tax will automatically satisfy
the equimarginal principle because all polluters will set the
tax equal to their MAC curve. MACs will be equalized across
all sources.
Assume pollution comes from two sources, plants H and L,
and that emissions are uniformly mixed, so that the
emissions of the two plants are equally damaging in the
downstream, or downwind, impact area.
LO3
Emission Taxes Are Cost-Effective
A uniform emissions tax of $200 per kilogram of carbon monoxide released is cost
effective. Both polluters set the tax equal to their MAC curve. H reduces emissions to 80
kilograms; L to 20 kilograms per month.
Under the Emission Tax ($200/t):
(Total Emission: 100kg/month)
TAC(H) = ?
TAC(L) = ?
Under the Uniform Standard (50kg/month):
(Total Emission: 100kg/month)
TAC(H) = ?
TAC(L) = ?
Uniform Standards and Emission Taxes
When MACs differ among polluters, social compliance costs are
lower under a tax than a uniform standard (meeting the same
target level of emissions) because the tax is cost-effective and the
uniform standard is not (see also Slide 12 in Lecture Note Ch11).
An emission tax is cost-effective even if the regulator knows
nothing about the marginal abatement costs of any of the sources.
This is in clear contrast with the standards approach, where the
public agency has to know exactly what these marginal abatement
costs are for each firm in order to have a fully cost-effective
programthat is, individual standards.
LO4
16
Lets check what weve learned.
Socrative.com
Room: 814957
17
Emission Taxes vs Standards:
Innovation
One of the main advantages of emission taxes is that they provide
strong incentives for investing in new technologies that have lower
marginal abatement costs for controlling emissions.
Two key differences between incentives to innovate under taxes versus
standards are as follows:
1. The firms R&D efforts will lead to a bigger reduction in its pollutioncontrol-related costs (abatement costs plus tax payments) under a policy
of emission taxes than under a standards approach.(See the graph)
2. Under the tax system the firm would automatically reduce its emissions as
it found ways to shift its marginal abatement cost function downward,
whereas under the standard no such automatic process would result.
LO5
18
19
Emission Taxes vs Standards:
Enforcement Costs
Any tax system requires accurate information on the item to
be taxed. If emissions are to be taxed, they must be
measurable at reasonable cost.
If the tax is on emissions per day, while a standard is based
on annual emissions, the tax policy will have higher
enforcement costs.
It is possible that monitoring must be done on exactly the
same basis to ensure compliance with the tax or the
standard making the enforcement costs nearly identical.
LO5
20
Emission Taxes vs Standards:
Government Revenues
Taxes have another potential advantage over standards and
subsidiestax revenue is collected.
Economists have advocated using emission tax revenues to
reduce other taxes that provide disincentives to work, save,
and invest in the economy; taxes such as on payrolls,
income, and investment.
The pollution tax revenue is used to reduce other taxes,
there will be no net gain in the size of government (net of
any tax collection costs).
LO5
21
Emission Taxes vs Standards:
Distributional Impacts
There are two primary impacts of effluent taxes on the
distribution of income and wealth:
–
Impacts on prices and output of goods and services affected
by the tax
–
Effects stemming from the expenditures of revenues
generated by the tax
22
Emission Taxes vs Standards:
Distributional Impacts
If the tax is applied to an entire industry, then prices will go up
and consumers will bear part of the burden.
Price increases are often thought of as regressive
If emission tax revenues are recycled back to the community in
the form of tax cuts and credits, much of the impact on lowincome people can be mitigated.
– For example, B.C.s carbon tax cuts the personal income tax rates to the
first two tax brackets by 5 percent and provides a tax credit of just
over $100 per adult and $30 per child each year to low-income
households.
23
Practice exercise
Suppose a polluting firm has MAC = 400 – ½ E. Calculate
the firm’s level of emissions, abatement and total
compliance cost if it faced an effluent fee of $120 per unit
of emissions.
24
Emission Subsidies
A subsidy acts as a reward for reducing emissions. More
formally, it acts as an opportunity cost: when a polluter chooses
to emit a unit of effluent, they are in effect forgoing the subsidy
payment they could have had if they had chosen to withhold
that unit of effluent instead.
The regulator pays a subsidy for each unit by which the polluter
reduces its emissions, starting from a base level.
LO6
25
Emission Taxes and Emission Subsidies
Many of the points we made earlier about emission taxes also
apply to emission subsidies. The job of monitoring emissions
would be essentially the same except for difficulties in
determining base levels.
To be able to pay subsidies to polluters, governments will have to
raise revenue in some way. The extra revenue needed for
subsidies could come from more government debt, higher income
or sales taxes, and so on.
LO6
26
Chapter Overview
Emission taxes attack the pollution problem at its source, by putting
a price on something that has been free and, therefore, overused.
The main advantage of emission taxes is their efficiency aspects: If
all sources are subject to the same tax, they will adjust their
emission rates so that the equimarginal rule is satisfied.
Standards have the appearance of placing direct control on the
thing that is at issue, namely emissions. Emission taxes, on the
other hand, place no direct restrictions on emissions but rely on the
self-interested behaviour of firms to adjust their own emission
rates in response to the tax.
Chapter 11
Standards
© 2015 McGraw-Hill Ryerson Ltd.
1
Learning Objectives
LO1
LO2
LO3
LO4
LO5
LO6
Define and illustrate graphically the socially efficient equilibrium
emission standard and explain its advantages.
Describe and contrast the different types of standards that can be
introduced as direct regulation.
Explain the complexities introduced in setting standards when
marginal damages differ by region or time of day or other factors.
Describe and illustrate graphically how to achieve a cost efficient
equilibrium under a standard when the MAC curves for polluters
differ.
Explain the degree of flexibility of different types of standards and
their ability to spur investment in new technologies that can lower
emission intensity.
Describe the challenges faced in enforcement of standards.
© 2015 McGraw-Hill Ryerson Ltd.
2
What are Environmental Standards?
Standards are a type of command-and-control
(CAC) technique, also known as direct regulation.
For example, an emission standard is a maximum
rate of emissions that is legally allowed.
A governing body uses courts, fines, and other law
enforcement measures to ensure compliance.
LO1
© 2015 McGraw-Hill Ryerson Ltd.
3
The Socially Efficient Standard
Figure shows E* where MD=MAC. This is the socially efficient standard, 40kg of
Carbon Monoxide in this case.
Emitters must pay the MAC up to this point. These costs are called compliance costs.
LO1
4
Types of Standards
There are three types of environmental standards.
1)
2)
3)
-Ambient Standards
-Emission Standards
-Technology Standards
Canada uses each of these standards across
different industries to control pollution.
LO2
© 2015 McGraw-Hill Ryerson Ltd.
5
Ambient Standards
An ambient standard is a never-exceed level for a pollutant
in the ambient environment.
–
For example, an ambient standard for dissolved oxygen in a particular
river may be set at 3 parts per million (ppm), meaning that this is the
lowest level of dissolved oxygen that is to be allowed in the river.
To ensure that dissolved oxygen never falls below 3ppm in
the river, we must know how the emissions of the various
sources on the river contribute to changes in this measure,
then introduce some means of controlling these sources.
LO2
© 2015 McGraw-Hill Ryerson Ltd.
6
Emission Standards
Emission standards are never-exceed levels applied directly to
the quantities of emissions coming from pollution sources.
Emission standards can be set on a wide variety of different
bases. For example:
Emission rate (e.g., kilograms per hour),
Emission concentration (e.g., parts per million of biochemical oxygen demand,
or BOD, in wastewater),
Percentage removal of pollutant (e.g., 60-percent removal of waste material
before discharge).
In the language of regulation, emission standards are a type of
performance standard, because they refer to end results that
polluters who are regulated must achieve.
LO2
Technology Standards
There are numerous standards that dont actually
specify some end result, but rather the
technologies, techniques, or practices that potential
polluters must adopt. We lump these together
under the heading of technology-based standards
(TBS).
For example, the requirement that cars be equipped
with catalytic converters, or seat belts, is a
technology standard.
LO2
Technology Standards vs
Performance Standards
The difference between a performance standard and a
technology standard may become blurred at the edges. The
basic point of differentiation is that:
-A performance standard, such as an emission standard, sets a
constraint on some performance criterion and then allows people to
choose the best means of achieving it.
– A technology standard actually dictates certain decisions and
techniques to be used, such as particular equipment or operating
practices to be used by polluters.
LO2
Setting Standards
Setting a uniform standard across different areas creates
inefficiencies due to geographic differences.
For example, low air quality in an urban area is likely to cause more damage
than in a sparsely populated rural area. So the efficient level of pollution can
not be achieved in both areas under the same standard.
When marginal damages for a pollutant vary by region, time
of day, or season, a uniform standard will not be socially
efficient. Therefore, individual standards that set the MAC
equal to each MD are socially efficient.
LO3
10
Uniform vs. Individual Standard: Which one is efficient?
11
Cost-Effectiveness when
Marginal Abatement Cost Curves Differ
Figure below shows the marginal abatement cost relationships
for two different carbon monoxide sources of emissions.
One producer has a higher MAC than the other. This results in
one factory spending more money to abate to the required level
than the other. This is not cost-effective because it does not
follow the equimarginal principle. At 60 kilograms controlled
each, MAC H greatly exceeds MAC L.
For example, If individual standards are set at 34.3 kg/month for
L and 85.7 kg/month for H. The policy is cost-effective and
results in lower total costs of abatement to reach the target level
of emissions.
LO4
12
Cost-Effectiveness when
Marginal Abatement Cost Curves Differ
13
Investment in New Technologies
Command and Control standards often do not provide incentive to
find new ways of reducing emissions.
If the standard is being met, there is no incentive to do any better than the
standard, even though the costs of further emission reductions might be
quite low.
Technology standards create poor incentive to develop new technology
because if it were developed, there is no guarantee it could not be used.
Polluters have to meet the standard (or face penalties) even if the
costs of complying may be much more than the damages reduced.
This is not cost-effective.
LO5
14
Technology Forcing
Creating extremely high standards that are not possible with
todays technology can force polluters to develop new control
methods and is called technology forcing.
For example: A mandate that 50% of vehicles sold must be
zero emission vehicles (such as electric cars) might force
companies to invest in the development and production of a
new generation of electric cars.
A problem might occur if the technology is not ready for adoption for example,
battery limitations make electric cars expensive and limited in application at this
time, and producers may be required to sell cars consumers do not want to buy
LO5
15
Enforcing Standards
With limited enforcement budgets regulators must often rely
on self-monitoring where sources themselves keep the
books on emissions flows over time and is common in
Canadian environmental protection.
Tolerable levels of compliance may still be attainable with
self-monitoring and random audits.
Why would a polluter report honestly? The typical reason is
a strong incentive to do so provided by the system of fines.
LO6
16
Setting and Enforcing Standards
One very common feature of environmental standards is that
they are usually set and enforced by different groups of
people. Standards are often set by national authorities;
enforcement is usually done by local authorities.
For example, the air-quality standards established under the Canadian
Environmental Protection Act are set at the federal level, but much of
the enforcement is carried out by provincial agencies.
If little thought is given to enforcement costs when a standard
is set at the national level, local authorities are left to deal
with high costs.
LO6
17
Chapter Overview
In this chapter we specified three primary types of standards:
ambient, emission, and technology.
A leading problem with standard setting is the question of costeffectiveness and the equimarginal principle. When marginal
abatement costs differ among sources, as they almost always do,
uniform standards cannot be cost-effective; individual standards
are required.
We examined the incentives standards might have to look for
better ways of reducing emissions.
Emission standards do create positive incentives for R&D in
pollution control, though we will see that these are weaker than
those of economic-incentive types of pollution-control policies,
the subject of the next two chapters.
Purchase answer to see full
attachment
Explanation & Answer:
2000 words
Tags:
canada
carbon emissions
Domestic and Global Policy
User generated content is uploaded by users for the purposes of learning and should be used following Studypool’s honor code & terms of service.
