GPHY 314 Chapter 12: Mitigation Policies

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29 Dec 2020
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CHAPTER 12: Mitigation Policies
Conventional Regulations
Aka command-and-control regulation requires all emitters in particular economic sector to
meet single standard
Advantage that it is clear and easy to understand but weaknesses identified since 1980s and
falling out of favor with regulators
o Technologies specific may not actually turn out to be best ones i.e. wind, CCS
o Regulations force all emitters to meet same emissions standards
Ignores fact that some can reduce emissions more cheaply than others
o Provide no incentive for development and deployment of new technologies that reduce
emissions beyond the specified target
Due to disadvantages, little talk in policy of attempt to solve climate change primarily with
conventional regulations -> Market-based regulations more preferred
Market-Based Regulations
Solution to make emitters pay for emitting GHGs, giving economic incentive to reduce
Doesn’t tell people how much they can emit or what technology to use, only requires them to pay
for whatever emissions they do make and makes reductions cheaper than conventional
Carbon tax -> Emitters have complete freedom to emit as many tons of GHGs, as long as they
pay specified fee to government for each ton released to atmosphere
o Marginal cost of reducing emissions increases as emissions are progressively reduced
o Law of diminishing returns -> Each additional unit of effort produces less of an
improvement than the previous unit of effort
o If carbon tax of $4 per ton is imposed on emitters, plant will search for cheapest
alternative -> Rational thing to do is to not emit those tons, based on their costs
o Each emitter will reduce emissions until the marginal cost of reduction is equal to the
carbon tax rate
o Under conventional command-and-control, there is single performance target each plant
required to meet but carbon tax is cheaper because of its flexibility -> It shifts reductions
to lowest marginal cost emitters to that emissions reductions are made where cheapest
which lowers overall cost to society
o Reasonable easy to implement, could be applied to fossil fuel when extracted from
ground, using administrative infrastructure for existing taxes
Price of tax would follow fuel through market, where end user would pay it
Tax credit would be generated if carbon used in way that it was not released into
the atmosphere (such as production of plastic or capture of carbon in coal
combustion followed by sequestration)
o As part of long-term policy, would start out relatively small and gradually increase over
several decades until emissions have been reduced to target level
Gases other than carbon dioxide like methane or nitrous oxide would also be
taxed but at rate that takes into account how effective each one is at warming the
planet
o Costs of reducing emissions would eventually be passed on to consumers so net effect of
carbon tax to raise the prices of goods and services by an amount proportional to the
amount of GHGs released
o Many people consider taxes to be bad so they look at suggestions of carbon tax with
disdain but economists argue well-designed tax serves a useful economic purpose
For activities that generate negative externalities, free market prices these
activities too low, leading to overconsumption of associated good/service
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