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ECON 3220 (17)
Ali Kamar (17)

Chapter 12-1.docx

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ECON 3220
Ali Kamar

Chapter 12 Pollution Taxes  The taxes or levies or charges imposed per unit of emissions produces o Carbon Tax  It is one of the centralized market-based incentive policies of environmental regulation as it leaves the choices to the polluters on how much to emit and pay taxes on  It induces polluters to find the best way to reduce emissions, so that a they can reduce their tax bills  With pollution taxes, total private compliance costs includes abatement costs for the emissions reduces plus the tax bill on the remaining unites of emissions. This implies that polluters have absolutely no right to use environment as a waste sink which is not he case for emission standards  Some suggest implementing a two-part emission tax that allows exemption of first few units and apply tax thereafter  If the government has perfect knowledge of the MAC and MD curves it can determine the socially efficient pollution levels by equating the MAC curve to MD curve Class exercise: Pollution Taxes  Suppose the government somehow determined the pollution taxes at the socially optimal level of emissions, where MAC=MD  Using the diagram, determine the private compliance costs to the polluter and net benefits to the society of this pollution tax  Compare the difference of this tax policy with the emission standard policy implemented at the socially efficient level of emissions o Without taxes  Polluters have no incentive to reduce M emissions (E )  TAC= 0  TDC= A+B+C+D  TSC= RAC+ TDC= o A+B+C+D o With taxes  Polluters have incentive to reduce emissions to E*  TAC= B  TDC= A  Total tax bill= A+F on E* units  So total compliance sot = TAC+ Tax bill o B+A+F  TSC= TAC+TDC= A+B o Net benefit (cost savings ) of taxes  (A+B+C+D) – (B+A)  C+D o B) With standard, we get same net benefits to the society, but pollution taxes cost more to the firms by the area (F+A). With taxes,
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